NSW Focuses on Solar-Battery Hybrids to Replace Aging Coal Power
New South Wales (NSW) is shifting its focus towards solar-battery hybrid projects as it aims to enhance its energy capacity, needed to replace its ageing coal-fired power stations. With preparations underway for a series of key auctions this year, the state is looking to revise its underwriting agreements – known as Long Term Electricity Service Agreements (LTESAs) – to provide improved support for these innovative technologies.
Solar-battery hybrids have emerged as the preferred solution due to the decreasing costs associated with battery storage and solar energy. These systems allow solar power to be stored for use during peak demand periods in the evening and morning, and they have recently dominated federal auctions as construction of these setups is often faster, simpler, and more affordable than that of large-scale wind farms.
Advantages of Solar-Battery Hybrids
In addition to cost and construction benefits, solar-battery hybrids can be easily integrated with existing network infrastructure, thanks to the flexibility provided by their battery components. They typically face fewer planning challenges and experience less disruption from supply chain issues and transport logistics, enabling smoother project development.
The proposals for these changes come from ASL, the consumer trustee overseeing state and federal capacity auctions, which has also initiated a push for projects situated outside designated renewable energy zones. The revisions aim to assist projects that fear being stranded or limited by delayed infrastructure, offering them increased compensation to mitigate the effects of lower early output.
Addressing Capacity Needs
With an urgent need to construct enough capacity to replace its ageing and increasingly unreliable coal power stations, NSW is under mounting pressure. The closure timelines for the Eraring and Vales Point facilities have already been pushed back, with Eraring, Australia’s largest coal generator at 2.88 GW, likely to operate at least partially beyond August 2027 due to concerns of potential power shortfalls and price surges during peak periods.
Initially aiming for a minimum of 12 GW of new energy capacity by 2030, the state has now raised this target to 16 GW, ensuring that the gap left by retiring coal plants is adequately filled, especially as overall demand grows to accommodate industrial needs and the rising popularity of electric vehicles (EVs).
Upcoming Auctions and Future Plans
The modifications to support solar-battery hybrids have been announced as NSW is poised to meet its quota for the federal government’s Capacity Investment Scheme within current auctions, with results anticipated by May. The state plans to recommence its own generation auctions in the second quarter, aiming to secure a total of 5 gigawatts of capacity through two auctions this year, with additional rounds planned for 2027.
“The year 2026 is pivotal for advancing the NSW Electricity Infrastructure Roadmap, with LTESA tenders set to restart from the second quarter alongside our next long-duration storage tender,” stated Nevenka Codevelle, CEO of ASL, which manages both the CIS and NSW auctions.
Codevelle acknowledged the evolution of market conditions and technologies since the initial development of LTESAs, highlighting a notable shift towards solar-hybrid projects that generally have a quicker market entry and align with the state’s infrastructure investment goals for 2030.
Navigating Market Dynamics
Solar-battery hybrids circumvent negative pricing events that often compel solar farms to cease operations during midday, thus enabling energy to be stored and sold at peak demand times when prices are higher. Currently, Australia boasts just one fully operational large-scale solar-battery hybrid in Cunderdin, Western Australia, which consistently supplies power to the grid during evening peaks and into the night.
Additionally, the Quorn Park facility near Parkes in central western NSW has recently become operational, alongside two other projects in development—Maryvale and Goulburn River—which were the first solar-hybrid projects to secure underwriting tenders in NSW in 2023. An additional 18 solar-battery hybrids have also garnered underwriting agreements through two CIS auctions, five of which are located in NSW.
Plans for Future Tender Designs
The emergence of solar-battery hybrids is reshaping the Australian Energy Market Operator’s planning framework, the Integrated System Plan, reflecting a larger forecast of these hybrid systems and a reduction in anticipated wind capacity in its latest draft report. The current CIS tender is set to secure a total of 5 GW of generation capacity, with some developers also exploring the combination of wind and battery hybrids. However, Victoria has specifically opted for wind-based projects, excluding solar-battery hybrids from its allocation.
To tailor the LTESA product for solar-hybrid projects, ASL has released a consultation paper analysing the potential design of a Hybrid Generation LTESA product, aiming to optimise revenue opportunities. Feedback is being sought on two proposed models: one fixed volume and shape, potentially influenced by existing ASX products like morning and evening peak pricing; the other is focused on generation-following and price risk sharing, promoting active participation in market dynamics.
For example, the paper suggests indicative pricing where a purely solar profile could yield around $65/MWh, while a shaped solar-hybrid model might command about $90/MWh during peak hours, and a generation-following solar hybrid could fetch a fixed price around $100/MWh along with a shared price risk of 50%.
Looking Ahead
ASL aims to finalise these options before re-launching NSW tenders in the second quarter of 2026, offering 2.5 GW of capacity in each of two auctions slated for the year. Despite the focus on solar-hybrids, Codevelle emphasised that wind energy will continue to play an integral role in the energy mix, reinforcing that wind projects remain a priority and can also benefit from the new product offerings.
