How is the rapid growth of battery storage changing wholesale electricity prices and the future role of gas generation in Australia's electricity market?
Australia's National Electricity Market (NEM) is undergoing a profound transformation as coal generation retires and increasing volumes of renewable energy and battery storage enter the system. As the market evolves, understanding how different technologies influence electricity prices has become increasingly important for energy planning, investment decisions and system reliability.
This project examines how growing battery penetration is changing wholesale price formation across the NEM and what these changes mean for the future role of gas-powered generation. The research focuses on the often-overlooked relationship between price-setting behaviour, market competition and investment incentives in a rapidly decarbonising electricity system.
The project builds on evidence that suggests that gas-powered generators play an important role in setting wholesale electricity prices despite providing a relatively small share of total electricity generation. Historically, gas generators have acted as the market's 'expected marginal generator', providing flexibility during periods of high demand or low renewable energy output and influencing bidding behaviour across other generation technologies. The research explores how this traditional role is being challenged by the rapid growth of battery storage and what the implications are for gas-powered generation economics.
A key component of the project is the use of econometric modelling to quantify the causal impact of increasing battery capacity on price-setting outcomes. By analysing every five-minute dispatch interval across the NEM, researchers examines how the probability of different technologies setting wholesale prices changes as battery penetration increases. The modelling incorporates market conditions, regional factors and battery deployment trends to isolate the effects of storage on market behaviour.
Results suggest that additional battery capacity reduces the frequency with which gas and hydro generators set market prices, particularly during high-price and very high-price events. This effect appears strongest during periods that have historically provided significant revenue opportunities for flexible gas generation, which may see project economics become increasingly dependent on recovering capital costs rather than fuel costs alone, potentially altering bidding strategies and long-term investment incentives.
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