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Australia is set to add 1.2 gigawatt-hours (GWh) of energy storage capacity in 2020, more than double the 499 MWh installed in 2019. This takes the country’s cumulative storage capacity at 2.7 GWh this year, according to our latest report on Australia’s energy storage market.

For the first time, front-of-the-meter (FTM) capacity at 672 MWh will overtake the 581 MWh behind-the-meter (BTM) capacity in 2020, a result of funding programs by the federal and state governments, as well as Australia Renewable Energy Agency (ARENA).

BTM installations have traditionally led capacity growth as state governments have been issuing subsidies for rooftop solar and residential storage, as well as funding for distributed energy resources. Residential, commercial and industrial customers are also incentivized to install BTMs to manage rising electricity bills and power outages.

The FTM market’s leading position is likely to be short-lived as the industry faces many uncertainties. The coronavirus-led restrictions and economic downturn could cause delays or cancellations to the 4.6 GWh announced projects in the pipeline over the next five years.

South Australia, in particular, is at risk as the majority of the planned deployments are located there. Developers with strong balance sheets are in a position to push ahead with their project developments, but still face grid connection challenges in the future.

With ARENA’s advanced renewable funding phasing out, storage developers are pressed to seek private equity to cover 10%-50% of initial project investments. Revenue uncertainties and risks of grid connection may prevent projects from attracting funding. The FTM market is most affected by this and is likely to contract in 2022.

Still, the future of the FTM market is bright as the cumulative capacity could hit 4.2 GWh by 2025. By then, most of the FTM capacity would come from solar-plus-storage, which is a solar power plant paired with a battery storage capacity. Falling battery costs will lead to improved overall capex for the energy storage sector.

The costs of energy storage systems will decline by 27% over the next five years. By 2025, the levelized cost of electricity (LCOE) of both solar-plus-storage and solar-and-wind-plus-storage are expected to be cheaper than gas plants.

In general, we can expect renewables-plus-storage costs to be about 20% to 29% lower in 2025 compared to today.

While coal will still remain Australia’s cheapest source of electricity in 2025, the switch from coal to green energy is more about short-term pain for long-term gain.

As Australia gradually phases out its 31 GW coal fleet, it will need to look for alternatives. Project developers, both domestic and international, are clearly unfazed by the challenges. The number of Australian developers has doubled to 40 this year.

By 2025, we estimate Australia’s cumulative energy storage investment to hit $6 billion (USD). This translates to 12.9 GWh of cumulative storage deployments.

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Le Xu is a senior analyst at Wood Mackenzie.

Learn more about Wood Mackenzie’s new report, Australia Energy Storage Market Outlook 2020.