NSW leading the way

Another long-duration lithium-ion project has been announced in Australia, this time by multi-national energy company RWE which reached financial close on the project this week. The 400MWh/50MW project named Limondale BESS, will be the first 8-hour duration project in the country by the time it comes online by its target COD in late 2025. The project is located in New South Wales (NSW), where the only other 8-hour lithium-ion projects in the country have been announced: the 392MWh/49MW Goulburn River (Hunter Valley) BESS and the 2,200MWh/275MW Richmond Valley (Myrtle Creek) BESS, both estimated to come online in 2028.

All three projects are a result of tenders held under the state’s Electricity Infrastructure Roadmap Scheme, which provides developers with bidding auctions in which projects compete for contracts-for-difference awards (CfDs). The first was conducted in May 2023, with Limondale being the only successful BESS project to win a contract, with the other two much larger projects bidding in the ongoing second round.

This is similar to the process under discussion in the UK as part of the Government’s consultation on long-duration energy storage (LDES) financing mechanisms announced in January (although the UK has excluded lithium-ion technologies from participation for now).

Duration snapshot

BESS storage durations are increasing at a faster pace than some have expected. Projects are now entering the pipeline with upwards of 8-hour durations using lithium-ion (frequently LFP) batteries as markets mature and the need for longer-duration energy storage becomes more apparent. This has been substantially enabled by the low and falling cell prices for the past year.

This obviously varies from market to market; for example, in the UK storage systems are and have been around 1-2 hours duration, while the vast majority of projects coming online and entering the pipeline in California are 4-hour duration. This is largely driven by localised grid regulations and market mechanisms incentivising certain types of systems for particular purposes.

However, the need for longer-duration projects – depending on location this is considered anywhere between 6+hrs (UK), 8+hrs (Australia), or 10+hrs (USA) – is beginning to garner more policy support, as evidenced by NSW’s successful tendering process.

What’s the problem?

As an investment model, LDES struggles to compete with shorter duration systems in terms of economic viability. The markets and services through which batteries can stack revenues incentivise frequent cycling of batteries, meaning shorter-duration projects are the most likely to get built. LDES projects will cycle less frequently and require more upfront capital to build, delaying ROI and generally putting off much-needed investment.

The CfD programme, as demonstrated in NSW, plugs this financing gap by providing projects with a cap-and-floor revenue system; when project revenues fall below an agreed strike price, the state will provide funds to top-up revenues to reach this floor. Likewise, when revenues exceed the ceiling level, these excess profits will be paid to the state. Put simply, the CfD system provides revenue certainty over multi-year contracts (15-20 years typically), which in turn makes projects more appealing to investors.

Why do we need longer durations?

It is important to look at this trend holistically. While battery durations are getting longer as cell and system capacity increases with technological improvement and financing mechanisms become more tailored to LDES, there remains the eventual need for multi-day or even week/month-long storage in the future.

In a Net Zero world, where hypothetically 100% of our energy comes from renewables, the ability to store and discharge energy over these timeframes is crucial. Therefore, lithium-ion batteries may not be the one and only solution to the problem – technologies such as pumped-hydro or even longer duration electro-chemical batteries will be called upon in the future.

Some OEMs are recognising this, with Sungrow announcing last week that it will invest in an iron-flow battery production facility in China. Nonetheless, Australia seems to be demonstrating that successful financing models are attainable to make LDES projects possible much sooner than expected.

Image credit: Adobe Stock

Source: RWE