South Australia advances long-duration energy storage with new 15-year support mechanism

Long-duration energy storage (LDES) concepts are eyeing a possible win in South Australia, with the government advancing a support scheme tailored specifically for projects that can deliver power continuously for eight hours or more.

The initiative effectively creates a targeted and bankable market for LDES, offering the long-term deal structures necessary to bring these critical reliability projects to fruition. The detailed plan is outlined in the “Stage Two Consultation Paper” for the Firm Energy Reliability Mechanism (FERM), which was recently released for public comment.

The paper includes the draft regulations for the scheme and seeks final industry feedback, following an initial consultation in late 2024. This framework is the government’s next step in securing the long-duration, dispatchable capacity required to keep the state’s power supply stable and affordable.

The goal is to encourage assets offering at least 30 megawatts (MW) of capacity and the ability to “continually dispatch” for at least eight hours. In simple terms, the government will pay energy companies to build or maintain power sources that can deliver a large amount of electricity for at least eight hours continuously.

The framework aims to bolster grid reliability and affordability by introducing a five-year Firm Energy Target (FET). This allows the government to set and revise capacity goals annually, in July of each year, based on expert input and system needs.

Draft rules and next steps

Under the draft rules, long-duration energy providers – those capable of delivering 30 MW of continuous output for at least eight hours – must respond to a ‘Notice of Intention,’ and adhere to performance and compliance requirements. New providers will compete in a tender process for up to 15-year contracts, structured under a commercial “cap and collar” model.

The financial support under this model will be bid under three key figures: a revenue floor, a ceiling, and a threshold.

• If a project’s annual revenue falls below the floor, the scheme pays them a “top-up”.
• If revenue exceeds the ceiling, the project shares the upside, repaying some funds to the scheme.
• This model provides a safety net against low market revenues while allowing for market-driven profits, reducing overall project risk.

In exchange for receiving financial backing, the energy providers under contract must remain on-call throughout the year, with their availability and reliability subject to regular evaluation.

One potential negative for innovative LDES ideas is that while coal and nuclear sources of fuel are banned, direct competition is allowed from gas fuels, including incumbent gas generators.

Still, South Australia is targeting 100 per cent net renewable generation by 2027 which may influence the final decision. Initially targeting a 2030 target, it was revised in early 2024, when South Australian Energy Minister Tom Koutsantonis said the state was “doubling down on our ambition.”