Ready-to-build BESS projects lose their premium as Australia's NEM arbitrage spreads collapse 85%

The venture-capital-style returns that once rewarded early-stage battery storage developers in Australia have gone, according to panellists at the Battery Asset Management Summit Australia 2026, held in Sydney on 25-26 August^[1]. The proximate cause is a collapse in National Electricity Market arbitrage margins: the NEM-wide average price spread between charging and discharging fell from AU$342/MWh to AU$51/MWh in the year to Q2 2026, a decline of roughly 85%.

What the RTB premium was - and why it has gone

John Sheehy, chief executive of corporate advisory firm Pottinger, told the "Attracting Overseas Investment for Australian BESS" panel that the market has moved away from the model that defined utility-scale solar roughly a decade ago, in which early-stage developers could sell projects at a premium once they had secured land, development approval and a grid connection offer^[1]. That ready-to-build transaction window - where venture-capital-style returns were available to early investors - was, in Sheehy's words, "arguably the best time to ever be doing early stage renewables development"^[1]. It no longer exists in the same form.

The mechanism is straightforward. Australia's grid-scale BESS fleet grew roughly fourfold in three years, and by the end of Q2 2026 installed capacity in the NEM had passed 9,000 MW. That volume of competing assets has compressed the spreads that underpin merchant revenue, making the returns that once justified a development premium harder to demonstrate to buyers.

Revenue numbers that explain the mood

The revenue data from Q2 2026 illustrate the shift in concrete terms:

• Estimated net battery revenue across the NEM fell to AU$57.5 million in Q2 2026, down from AU$130.5 million in Q2 2025 - a AU$73 million decline in a single year
• Net arbitrage revenue dropped 56% to AU$52.8 million, with gross energy revenues falling AU$44.5 million while charging costs rose AU$23.6 million
• FCAS revenue fell 51% to AU$4.8 million

Against that backdrop, investor return expectations have moved in the opposite direction. A speaker from Eku Energy on a separate panel said projects delivering 8-10% returns are now effectively uninvestable, because investors are expecting 13-14%.

What the market is doing about it

Matt Grover, director of energy markets at Fluence, told the summit that most emerging BESS business cases are "feeling the pinch right now" as spreads narrow, but framed the compression as cyclical rather than structural. The argument is that coal retirements will eventually reshape price formation and widen spreads again.

In the meantime, the pipeline has not stopped growing. In Q2 2026, a record 6.9 GW of new connection applications were approved across 32 projects, with battery storage accounting for 3.6 GW of that total. The federal Capacity Investment Scheme is providing a floor: CIS Tender 8, announced in June 2026, awarded contracts for 4.2 GW / 16.1 GWh of battery storage across the NEM. Developers are also shifting toward longer-duration assets and revenue stacking across grid-forming, network support, and cap contracts to compensate for compressed arbitrage margins.

The panel discussion also surfaced a structural question about how overseas capital enters the market. Panellists - including representatives from Everoze, Aquila Clean Energy APAC, the NSW Energy Security Corporation and Baker McKenzie - debated what liquidity mechanisms and portfolio aggregation strategies allow foreign investors to scale Australian BESS exposure while retaining the operational control needed for dispatch optimisation.

What to watch

The key variable is whether coal retirements materialise on the timelines that underpin merchant revenue forecasts. If they do, spreads may recover and the RTB premium could return in a different form. If the pipeline of 13 GW / 34.7 GWh in financially committed projects reaches operation before coal exits, the compression could deepen further. The CIS floor provides some protection, but it does not replicate the development-stage upside that made early-mover positions so attractive in the solar era.