Post: Six things every sub-5MW BESS project needs to get right

Six things every sub-5MW BESS project needs to get right

Guest post by GridBeyond Business Development Director (AU), Mark Netto

The next generation of high-performing sub-5MW battery projects will likely be differentiated by six things:

• better forecasting during volatile intervals
• clarity on what the battery is actually being optimised for
• genuine hybrid optimisation capability
• stronger FCAS operational resilience
• the ability to scale from one asset to a portfolio
• the ability to operate under both merchant and contracted revenue models

Most of the market still focuses on getting assets connected, registered and earning energy and FCAS revenues. Those things remain important, but they are increasingly becoming the baseline rather than the source of long-term value creation.

Two years ago, the investment thesis for many sub-5MW battery projects was relatively straightforward. Developers were primarily focused on connecting assets, accessing FCAS markets and capturing energy volatility. For a period of time, that was enough to generate strong returns.

The market is now evolving

FCAS revenues have become more competitive, energy volatility is becoming harder to capture consistently, and a growing proportion of new projects are being built as hybrid assets. At the same time, lenders are asking more sophisticated questions around downside protection, while developers with multiple projects are starting to think about portfolio scalability much earlier.

Despite this shift, many projects are still being evaluated using relatively simple criteria:

• can the asset be connected?
• can it be registered?
• can it start earning market revenues?

These are still important questions, but they are no longer sufficient. The bigger question now is what separates high-performing battery portfolios from the rest of the market.

Below are six areas that are becoming increasingly important.

Forecasting accuracy

Every optimisation provider claims to have strong forecasting capability. Very few explain how forecasting performance is actually measured.

This matters because battery revenues are often concentrated in relatively short periods of market volatility. Missing those windows (or charging at the wrong time) can materially impact project returns.

The market is becoming more sophisticated in how it evaluates forecasting capability. Questions such as the following are becoming increasingly relevant:

• what benchmark is being used?
• how does performance compare to public market forecasts?
• how much incremental value is being created through forecasting accuracy?

We’ve seen meaningful differences in forecasting performance across the NEM, particularly during volatile intervals. This is likely to become a much bigger area of focus over time.

What exactly are you optimising for?

This sounds like a simple question, but it is becoming increasingly complex.

Historically, most sub-5MW batteries were largely optimised against merchant market revenues. Performance measurement appeared relatively straightforward; did the battery capture sufficient energy and FCAS value? That is changing.

Some assets remain fully merchant, while others are increasingly being optimised against:

• virtual tolls
• contracted floors
• offtake obligations
• portfolio constraints
• downside protection requirements

A battery optimised purely for merchant upside may behave very differently to one operating under contractual obligations. This creates a broader challenge for the market: how should performance be measured when the optimisation objective itself is evolving? That discussion is still in its early stages.

Hybrid optimisation

A growing portion of the sub-5MW pipeline is no longer standalone battery storage.

We are seeing more:

• co-located solar and storage projects
• retrofitted solar farms adding storage
• DC-coupled projects
• behind-the-meter hybrid systems

These projects introduce operational complexities that do not exist in standalone batteries, including solar forecasting, clipped solar capture, charging from onsite generation, negative pricing exposure and shared connection constraints.

Many optimisation systems were originally designed for standalone batteries and later adapted for hybrid assets. That distinction is becoming increasingly important as more hybrid projects enter the market.

FCAS operational resilience

This is often overlooked until something goes wrong. Sub-5MW batteries participating in FCAS markets face real operational risks, including telemetry failures, communications outages, state of charge limitations and compliance failures.

At the same time, some DNSPs are placing greater emphasis on operational visibility, remote monitoring and fault response capability.

A “set and forget” operating model is becoming harder to justify as more batteries connect at the distribution level. Operational resilience is becoming just as important as optimisation performance.

Portfolio scalability

The first battery project is rarely the last. Many developers begin with relatively simple operating models. Over time, those portfolios often evolve toward:

• multiple assets
• more sophisticated trading arrangements
• IRP participation
• SRA models
• changing market access structures

The risk is building early projects on infrastructure that works well for a single asset but becomes restrictive as the portfolio grows. We’re seeing more sophisticated developers think about this much earlier in the project lifecycle. That trend is likely to continue.

Contract flexibility

Pure merchant exposure is no longer the only route to market. There is growing interest in:

• virtual tolls
• structured offtakes
• revenue floors
• hybrid merchant models

These structures can improve bankability and reduce downside exposure, but they also introduce additional operational complexity. Platforms increasingly need to manage nominations, dispatch constraints, settlement workflows and auditability requirements. This part of the market is evolving quickly and will likely become far more common over the next few years.

The market is moving beyond operational readiness

Getting a battery connected and operational remains important but that is increasingly becoming the baseline. The next wave of value creation will likely come from better optimisation, stronger operational controls, portfolio flexibility and contract flexibility.

As institutional capital continues to enter the sector, these issues will become harder to ignore. The developers that recognise this early will likely have a structural advantage.

We will unpack each of these areas in more detail over the coming weeks. If you’re seeing similar trends in the market, I’d be interested to compare notes.

If you’re currently developing sub-5MW projects, preparing an RFP, or evaluating route-to-market options, feel free to reach out. Happy to share notes on what we’re seeing in the market.