From Watts Up With That?

Richard Willoughby

Summary

This article analyses one year of wind and utility solar generation data from Australia’s National Electricity Market (NEM). Using generation and curtailment data from OpenNEM, it estimates the storage requirements needed to firm wind and utility solar generation, examines the cost trade-offs between battery storage and generation overbuild, and extends the assessment to pumped hydro, household battery subsidies, and the economics of grid-scale storage. The author concludes that:

• Wind and solar show some complementary behaviour (“synergy”) when combined.
• A 16-hour battery appears to provide the lowest overall system cost based on the stated assumptions including current ratio of wind to utility solar.
• Supplying peak NEM demand using only wind, solar and batteries would require substantial additional generation and storage capacity.
• Based on the stated cost assumptions, the resulting levelized cost of electricity (LCOE) would be twenty times higher than conventional lignite fired generation costs achieved in 2003.
• Recent market developments reinforce the author’s view that large-scale wind, solar, batteries and pumped hydro do not currently offer favourable economies of scale in the NEM.
• The Discussion argues that Snowy Hydro’s useful storage volume is constrained by its relatively low generating capacity, while home battery subsidies and expanded small-scale solar eligibility are shifting value away from grid-scale batteries and pumped hydro.
• The author concludes that a fully renewable NEM remains economically impractical under current conditions.  Rooftop solar and behind-the-meter batteries are more economically viable than centralised “renewables” projects for the emerging de-industrialised economy.

Wind & Solar Generation in the NEM

Australia’s National Electricity Market (NEM) supplies 86% of the Australian population through a single interconnected grid.  The registered wind capacity is 13.46GW and the registered utility solar capacity is 10.71GW.

In the year to 1^st August 2026, wind generated 36.6TWh and utility solar produced 19.8TWh.  The recorded daily generation is displayed in Chart 1.

The key observations from Chart 1 are that the wind varies considerably day-to-day with multiple consecutive days of low output while the utility solar has smaller day-to-day variation but the annual variation is clearly evident.

OpenNEM also records the estimated curtailment of both wind and utility solar making it possible to assess the true potential of these two power sources.  Chart 2 shows the cumulative generation less the daily average over a year.

Chart 2 actually shows what the installed capacity is capable of if there was sufficient storage to absorb all excess and then release it as required.  The average daily output for wind would be 111GWh and would require a battery capacity of 1700GWh.  The existing utility solar would be able to supply daily average of 65GWh when supported by a 2600GWh battery. 

Trade-off of Battery Capacity and Generation Overbuild

At present battery costs, it is more economic to overbuild the generation to reduce the size of the battery.  Chart 3 shows the charge state of batteries with 24-hour storage capacity working independently for wind and solar.

In this situation, the existing wind could support an average daily demand of 48GWh while utility solar could support 34GWh per day.

Chart 4 shows the result of combining the sources of generation while still using a 24-hour duration battery.

The combined daily demand that can be served is 99GWh.  So the two sources exhibit synergy; enabling the combined output to be 20% higher than the sum of the individual outputs. 

The Minimum System Cost Battery

The current costs for the key components of a battery firmed wind and solar grid are:

• Wind Turbines – AUD3.5bn/GW
• Utility Solar – AUD1.5bn/GW
• Battery AUD0.5bn/GWh
• Transmission Lines – 30% additional capital for generators

Using these current estimates and the demand pattern with the existing wind and solar generation, it was determined that a 16-hour battery gives the lowest overall system cost.  Chart 5 indicates that such a system could meet a daily demand of 93GWh.

100% Battery Firmed Wind and Solar System

The highest daily demand was 728GWh so the existing wind and solar generation would need to be scaled 7.8 times to get from 93GWh per day to 728GWh. This gives a system requirement of:

• Wind Generator Capacity – 105GW
• Utility Solar Capacity – 84GW
• Battery Capacity – 485GWh

Levelised Cost of Energy from Wind and Utility Solar

Using the system cost components, the total system cost comes to AUD958bn.  Applying a cost of capital of 7%pa and O&M cost of 2% of capital per year over a 20 year life requires an annual income of AUD110bn.  Considering the annual demand totalled 220TWh, the average unit cost would be AUD500/MWh.  

This cost estimate is based on further simplifying, but optimistic, assumptions such as:

• 100% round trip efficiency for the battery.
• Battery systems can support most FCAS requirements while any inertia requirements are covered by the 30% transmission margin.
• Market management costs are in addition to the LCOE calculated here.

100% Battery Firmed Utility Solar

The existing utility solar can produce 34GWh per day with a 24-hour battery so it would need to be scaled 21 times to meet the peak daily demand with a purely solar/battery system.  This reduces the capital cost to AUD920bn and unit cost to AUD478/MWh.

Discussion

The mechanism that encouraged weather dependent generators onto the grid was legislated in 2000 in Australia.  The price impact was noticeable after 2003 when lignite fired generation was selling for AUD23/MWh.  Lignite generation now sells for AUD85/MWh because it is being cycled rather than operating at full capacity continuously but remains one of the ESSENTIAL sources of generation so can charge high prices when wind and solar are low.

Despite there being synergy with wind and solar generation, the high cost of wind generators in Australia makes them uneconomic against utility solar. And utility solar is uneconomic against rooftop solar because rooftops have dedicated demand. The low financial close on projects under the Capacity Investment Scheme indicates that investors are faced with actual costs exceeding estimates thereby making projects uneconomic despite the government guaranteed return on estimated cost.

Snowy Hydro pumped storage provides a storage capacity of 350GWh but its generating capacity is limited to only 2GW.  On a 16-hour basis, it only offers 32GWh.   So at the estimated cost of AUD42bn it works out at AUD1.3bn/GWh – more than double the current battery cost but it should outlast some five sets of battery using current technology.

It is noteworthy that in Q2 2026, the 240MW Shoalhaven pumped hydro energy storage (PHES) earnt just $1.3M for the quarter.  There is now a clear decline in income for PHES in the NEM since the introduction of the Cheaper Home Battery Scheme (CHBS) from July 2025 per Image 1 extracted from the AEMO report.  The CHBS scheme provides a 30% subsidy for battery purchases resulting in 11GWh being installed in the past twelve months; much faster than grid scale projects and households now own most of the battery capacity on the grid with three more years for the program to run.

A further recent observation is that the arbitrage on grid scale batteries has collapsed from $360/MWh a year ago to $60/MWh in the latest quarter.  So the CHBS has now made grid scale battery installations uneconomic.

As further evidence of the economic reality of negative benefit of scale for wind, solar and batteries, the Federal Government has made a 10-fold increase in the small-scale solar limit; taking it to 1MW from the existing 100kW.  That means shopping centres, hospitals, schools, etc can now gain subsidies for large solar/battery installations. 

Conclusions

Building a 100% “renewables” grid for the Australian NEM remains firmly in the realm of fantasy for the present time.  Achieving the first 50% has caused a 4-fold increase in base load cost and the next 50% will cause another 4-fold increase. 

Snowy Hydro pumped storage will only enable one more coal fired power station to be retired providing wholesale demand continues to slowly decline or is static.  Its power rating is inadequate to fully utilise its storage capacity.  If economics prevailed over insanity, the Snowy Hydro pumped storage project would be stopped.  Its earning potential at the present time is just $40M per year or 1/1000^th of its capital cost.  The potential income will not even cover its operating and maintenance cost.  It is a comprehensive waste of money; albeit the Labor Party receive generous donations from the unions to keep the money pit producing.

Wind, solar and batteries do not offer any economy of scale.  That had previously been observed with the rapid uptake of rooftop solar in Australia and the steady decline in the wholesale market.  Home batteries are now making the same point as the grid scale batteries and pumped hydro lose their market.

The de-industrialisation of the Australian economy continues per Image 2 with quarterly volume down 0.5% year-on-year as rooftops exceed any growth.

The Author

Richard Willoughby is a retired electrical engineer having worked in the Australian mining and mineral processing industry for 30 years with roles in large scale operations, corporate R&D and mine development.  In the early 1990s he represented large customers on the first market system committee for the Australian National Grid.  A further ten years was spent in the global insurance industry as an engineering risk consultant where he developed an enduring interest in natural catastrophes and changing climate.