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

The Push for Smarter Energy Procurement

Australia's National Electricity Market is undergoing rapid transformation as renewable energy, particularly wind and solar, supplies an increasing share of power. In the final quarter of 2025, renewables passed 50% in some regions, with national trends showing record highs in variable generation. This surge aligns with federal and state targets, including 82% renewables by 2030, but exposes a core challenge: renewables are intermittent, creating mismatches between supply and demand that drive price volatility and threaten reliability as coal plants retire—75% of capacity expected to exit by 2035.

Traditional corporate Power Purchase Agreements (PPAs) lock in fixed renewable supply for large commercial and industrial (C&I) users, but they often fail to address timing mismatches. Next-generation PPAs aim to integrate demand-side tools like demand flexibility—shifting usage to align with renewable peaks—and thermal storage, such as chilled water tanks or molten salt systems that store energy as heat or cold for later use in processes like air conditioning or industrial heating.

The stakes are concrete for major energy consumers, especially NGERs-reporting companies under emissions obligations. Electricity prices are projected to fall through 2030 with more renewables and batteries, but risk rising thereafter without accelerated investment. Surging demand from data centres and electrification adds pressure, while regulatory reforms in 2025-2026, including NEM access standards and market settings reviews, highlight barriers like the 'tenor gap' between short-term contracts and long-term financing needs.

Non-obvious tensions include the trade-off between low-cost flexibility options (often using existing thermal assets) and more expensive batteries, as well as risks for buyers exposed to wholesale prices versus those seeking stability. Hybrid offtake models blending stepped pricing and government-backed structures are emerging in 2026 to broaden participation, but success depends on large users adapting operations—changes that can cut costs and emissions but demand coordination across procurement and facility management.

Government initiatives, including potential funding for programs supporting six next-gen PPA processes, underscore urgency: without these innovations, Australia risks higher costs, delayed decarbonisation, and reliability issues amid coal exits and growing loads.