BESS arbitrage in Australia’s volatile energy market

Australia’s National Electricity Market (NEM) has become a case study in price chaos.  Aging coal plants combined with expensive gas and weather extremes have created the perfect storm for wild surges and sudden slumps.

But while this volatility rattles traditional generators, it creates favorable market dynamics for batteries.

Battery energy storage systems (BESS) nearly doubled their arbitrage revenue in just one year by dialling back from FCAS and ramping up spot market trading. Rather than just responding to the grid’s frequency deviations, BESS operators now actively buy energy when prices dip and sell it back during peak demand. This once-overlooked business model has become far more lucrative as the NEM’s price curves grow sharper and less predictable.

In this post, we track the market dynamics that turned arbitrage into a viable business case and drove a wave of utility-scale BESS deployment in Australia. 

How 2022 broke the market wide open

Pressure on the NEM had been building since Australia began adding renewables at a faster rate than the grid could keep up. By mid-2022, those structural strains collided with external shocks and system failures. Global fossil fuel prices were soaring, and wholesale prices spiked to record highs. The stress became so intense that AEMO took an unprecedented step: it suspended the entire spot market for nine days in June 2022.

That same year, the peak-to-trough price spread (the gap between low-cost charging periods and high-value discharge windows) widened dramatically. Arbitrage margins surged as price curves grew more erratic. Instead of relying heavily on FCAS revenue, operators began to capitalize on market swings, buying low and selling high during peaks.

Batteries across the NEM reached record-high energy trading revenues as a result. Arbitrage accounted for 40% of total BESS earnings, up from an average of just 12% in previous years.

Arbitrage revenue triples in two years 

By 2023, Australia’s big batteries were well-positioned to profit from frequent intraday price movements. That year’s price spikes created ideal conditions for fast-moving assets. As a result, grid-scale BESS in the NEM earned a record AU$165.4 million from energy arbitrage, triple their earnings from 2022. 

That trend held steady into 2024. In Q2, NEM battery operators generated AU$25.4 million from energy arbitrage alone, representing a 117% increase in revenue. By Q4, total BESS revenue climbed to AU$69.5 million, with arbitrage alone accounting for 69% or roughly AU$49 million.

This jump wasn’t simply the result of increased online capacity. The NEM was also hit with a wave of ‘high-high’ price events (instances where electricity prices exceeded AU$10,000/MWh). Batteries that could respond in real time were discharged into the market at peak prices, locking in strong margins. 

Notably, New South Wales recorded the highest battery earnings in the second quarter of 2024. Net revenue reached AU$13.4 million, more than four times the AU$3 million recorded in Q2 2023. Arbitrage accounted for AU$11 million of that total, while FCAS brought in another AU$2.4 million.

Across the entire NEM, FCAS continued to generate consistent income, contributing AU$21.3 million in Q4 2024, a 19% increase from the previous year. But its share of the revenue pie shrank as arbitrage’s growth took center stage.

BESS output hits record highs in early 2025

Battery output in the NEM hit another benchmark in early 2025. Average BESS generation reached 98 MW in Q1, an 86% increase from the same time last year. Most of that output occurred during the evening peak, between 5 p.m. and 9 p.m., when solar PV production drops off and grid demand remains high. 

For now, BESS still makes up a small share of Australia’s total electricity mix, just 0.4% in Q1. But that’s double what it was a year ago, and it’s clear that output is growing as more large-scale systems either enter operation or ramp up commissioning. 

Among the projects powering this jump are the 850 MW Waratah Super Battery in New South Wales, the 200 MW Blyth BESS in South Australia, the 255 MW Western Downs BESS in Queensland, and Rangebank, a 200 MW system in Victoria. 

Together with utility-scale solar PV, these assets are driving most of the new generation activity so far in the 2025 financial year. Solar-plus-storage announcements are also on the rise, but for now, deployments remain concentrated in New South Wales and Victoria.

Market volatility draws global attention

Australia’s energy market is under close watch, and not just at home. Frequent price swings are drawing in international players.

Shell has backed the 500 MW Wallerawang BESS, while French developer Neoen continues to expand its footprint with the 877 MWh Collie Battery in Western Australia.

Philippines-based ACEN is developing a 400 MWh battery alongside its New England Solar project in New South Wales. Japan’s J-Power also entered the Australian market through its acquisition of Genex Power, gaining control of the Bouldercombe Battery and a major solar-plus-storage pipeline. 

Pumped hydro joins the arbitrage surge

Batteries are dominating headlines, but pumped hydro storage is also quietly profiting from market volatility. Total Q2 2024 revenue rose by AU$22.4 million compared to the same period last year, a 76% increase.

Much of that came from the Shoalhaven scheme in New South Wales. The 240 MW system earned AU$18.1 million from spot prices exceeding AU$300/MWh, pushing its total quarterly revenue to AU$24.4 million, a 235% year-on-year jump.

Pumped hydro’s scale and responsiveness make it well-suited to capitalize on price spikes, especially during extended peak periods. While fewer in number than BESS, these storage projects reinforce the broader trend: fast, flexible assets that can respond to market signals (and profit through arbitrage) are now central to Australia’s energy market economics.

Arbitrage defines the new economics of storage

Frequency response once defined the role of big batteries in Australia, but that has changed. 

Unpredictable pricing and sharp daily peaks have pushed arbitrage to the lead. BESS projects that can adapt fast and respond to real-time pricing are well-positioned to compete in Australia’s volatile electricity market.