Next Gen PPAs: What value can Demand Flex & Thermal Storage add?

The Push for Smarter Power Deals

Australia's National Electricity Market is in the midst of a profound transition. Renewables supplied around 40% of electricity in 2024, climbing higher in 2025 with roughly 7 GW added, putting the country on track for the federal government's 82% renewable target by 2030. Yet this rapid build-out of wind and solar creates challenges: their output fluctuates with weather, while ageing coal plants—such as those in New South Wales and Victoria—are nearing retirement, leaving potential shortfalls in reliable supply during peak periods or low-renewable conditions.

The Australian Energy Market Operator's forecasts and the late-2025 NEM Wholesale Market Settings Review underscore the urgency. The system is becoming more weather-dependent and less dispatchable, risking higher volatility and reliability gaps unless new mechanisms unlock flexible resources. Demand flexibility—shifting usage away from peak times—and thermal storage, which captures excess renewable energy as heat for later industrial use, emerge as critical tools to firm up supply without relying solely on expensive batteries or gas peakers.

For large commercial and industrial users, who account for substantial demand and often face net-zero commitments under schemes like NGER reporting, traditional power purchase agreements no longer suffice. Corporate PPAs boomed in 2024 with nearly 3.4 GW contracted, led by mining giants like Rio Tinto, but activity dipped in 2025 amid capture risks and uncertainty. Emerging loads from data centres and electrification are straining the grid further, driving interest in hybrid or 'next-gen' PPAs that bundle generation with on-site or contracted flexibility.

The stakes are tangible. Delays in adding dispatchable capacity could trigger reliability shortfalls as early as 2026-27 in regions like South Australia, pushing wholesale prices higher and exposing buyers to spot-market risks. Costs matter: flexibility can cut effective energy expenses by aligning consumption with cheap renewable surpluses, sometimes avoiding negative-price periods or peak tariffs. Yet tensions exist—industrial processes may resist load shifting if it disrupts output, and upfront integration of thermal storage adds complexity and capital needs, even as government schemes like the expanded Capacity Investment Scheme (now targeting 14 GW of dispatchable capacity) prioritise firming solutions.

Non-obvious angles include the interplay with evolving certification: the incoming Renewable Energy Guarantee of Origin scheme will reshape how renewables are tracked, potentially favouring 24/7 matched supply that demand flex enables. Meanwhile, policy uncertainty lingers despite Labor's 2025 re-election stability, as reforms like mandatory participation of price-responsive resources roll out toward 2030.