Green Innovation in Energy Storage for Isolated Microgrids: A Monte Carlo Approach

Abstract

Thursday Island, a remote administrative hub in Australia’s Torres Strait, exemplifies the socio-technical challenges of transitioning to sustainable energy amid diesel dependence and the intermittency of renewables. As Australia pursues Net Zero by 2050, innovative storage solutions are pivotal for enabling green innovation in isolated microgrids. This study evaluates Vanadium Redox Flow Batteries (VRFBs) and Lithium-Ion batteries as key enabling technologies, using a stochastic Monte Carlo simulation to assess their economic viability through Levelized Cost of Storage (LCOS), incorporating uncertainties in capital costs, operations, and performance over 20 years. Employing a stochastic Monte Carlo simulation with 10,000 iterations, this study provides a probabilistic assessment of LCOS, incorporating uncertainties in key parameters such as CAPEX, OPEX, efficiency, and discount rates, offering a novel, data-driven framework for evaluating storage viability in remote microgrids. Results indicate VRFBs’ superiority with a mean LCOS of 168.30 AUD/MWh versus 173.50 AUD/MWh for Lithium-Ion, driven by scalability, durability, and safety—attributes that address socio-economic barriers like high operational costs and environmental risks in tropical, off-grid settings. By framing VRFBs as an innovative green solution, this analysis highlights opportunities for new business models in remote energy sectors, such as reduced fossil fuel reliance (3.6 million litres diesel annually) and enhanced community resilience against energy poverty. It also underscores challenges, including capital uncertainties and policy needs for innovation uptake. This empirical case study contributes to the sustainable energy transition discourse, offering insights for policymakers on overcoming resistance to decarbonization in geographically constrained contexts, aligning with green innovation goals for systemic sustainability.

1. Introduction

Thursday Island, located in Australia’s remote Torres Strait [1], faces unique socio-technical challenges in its energy transition due to isolation and heavy reliance on diesel generators—a costly, environmentally unsustainable model consuming 3.6 million litres annually [2,3]. As Australia advances toward Net Zero by 2050, the shift to renewables in such microgrids represents a critical opportunity for green innovation, necessitating storage technologies to mitigate intermittency. This paper approaches the decarbonization challenge from an innovation perspective, evaluating energy storage options like Vanadium Redox Flow Batteries (VRFBs) and Lithium-Ion batteries through a Monte Carlo-based economic analysis. By quantifying Levelized Cost of Storage (LCOS) under uncertainty, we highlight how these solutions can foster new industrial sectors, overcome socio-economic obstacles (e.g., high fuel costs and grid access limitations), and address socio-ecological issues like energy poverty in vulnerable communities. The primary innovation of this paper lies in its application of Monte Carlo simulation to conduct a stochastic economic analysis, enabling a robust evaluation of LCOS under real-world uncertainties and contributing to the literature on green innovation in isolated energy systems.

This paper evaluates five energy storage technologies—Vanadium Redox Flow Batteries (VRFBs), Lead-Acid Batteries, Lithium-Ion Batteries, Pumped Hydro Storage (PHS), and Hydrogen Storage—through a comprehensive technical and economic analysis tailored to Thursday Island’s context. Using a stochastic Monte Carlo simulation, we assess the Levelized Cost of Storage (LCOS) for VRFBs and Lithium-Ion batteries, revealing VRFBs as the most economically viable option with a mean LCOS of 168.30 AUD/MWh compared to 173.50 AUD/MWh for Lithium-Ion systems. By positioning VRFBs as a key enabling technology for green innovation, our findings highlight opportunities to reduce operational costs, enhance sustainability, and overcome socio-economic barriers like energy poverty and high fuel imports, while providing a scalable solution for remote microgrids. This research contributes to the broader discourse on decarbonizing isolated energy systems, offering actionable insights for policymakers and energy planners on navigating transition challenges [2].

2. Energy Infrastructure

Energy Queensland, through its Ergon Energy Network, shoulders the responsibility of ensuring a reliable supply of electricity to Thursday Island and the broader Torres Strait region [3]. This task presents unique challenges due to the island’s remote location and the logistical complexities of operating an isolated microgrid.

While the island’s generation mix incorporates renewable energy in the form of two wind turbines totaling 450 kW capacity, these only contribute a small fraction to the overall energy production. Most of the island’s electricity is generated by four diesel generators with a total capacity of 9.1 MW using 3.6 million litres of fuel annually [4]. Thursday Island’s power generation archetypes are shown below in Figure 1.

2.1. Energy Demands

Thursday Island relies on an isolated microgrid to meet its current energy needs. The island’s peak hourly demand, reaching 4061 kW, significantly surpasses its average hourly demand of 2820 kW. The total monthly power demand from January 2020 to May 2024 is shown below in Figure 2, highlighting the need for a flexible and reliable power generation system that can manage an average daily demand of 67,692 kWh [5]. While Figure 2 illustrates relatively stable monthly average energy demand, daily variations are evident in the underlying data, with peak hourly demand reaching 4061 kW against an average of 2820 kW [5]. These fluctuations, driven by factors such as weather, tourism, and residential usage, are accounted for in the LCOS model’s assumption of one full daily discharge cycle (40 MWh), which approximates the system’s flexibility needs. However, extreme intra-day variability could increase cycling demands, potentially raising OPEX for technologies like Lithium-Ion batteries due to faster degradation. The Monte Carlo simulation incorporates efficiency and OPEX uncertainties to partially mitigate this, but future studies could integrate high-resolution load profiles for more granular analysis. This represents a sample period due to data availability constraints from Ergon Energy.

2.2. Renewable Energy Potential

Complex hybrid microgrid systems are becoming increasingly important in the push for Net Zero by 2050 in Australia. Complex hybrid systems often use diesel generators along with auxiliary renewable generation and may also include energy storage. The study of remote island hybrid microgrid systems is crucial to understanding the unique constraints of remote communities and modelling these systems to help decarbonise existing systems and increase renewable energy penetration. However, Ergon Energy has been actively pursuing a strategy to transition remote communities, including Thursday Island, towards renewable energy sources [2,6].

• Ergon Energy’s Isolated Networks Strategy outlines five key objectives [2,6]:
• Reduction in consumption of fossil fuels.
• Enablement of a customer and community led transition to renewable energy.
• Providing economic benefit.
• Increase in opportunities in communities.
• Mitigation of asset and fuel related risk.

3. Literature Review and Case Studies

A study by Jacobs on Lord Howe Island showed that by implementing BESS and PV the renewable energy penetration could achieve 67% while drastically reducing the reliance and cost of imported diesel fuel for the generators by 67%, a finding directly applicable to Thursday Island’s goal of minimising diesel consumption [7,8,9]. A study by Hasan et al. showed that by having a displaced hydrogen generation/storage source on Horn Island and exporting it to Thursday Island, it increased renewable energy penetration to almost 100%, reduced CO₂ by 99.6%, and decreased LCOE by AU$0.01 [10].

Psarros et al. (2024) found that islands, due to their isolation and vulnerability to fluctuations in renewable energy, require substantial energy storage to integrate significant levels of renewable energy [11]. To exceed 50% renewable penetration, storage is essential for system flexibility and energy arbitrage [11,12]. Reaching over 90% penetration may necessitate storage capacity six to seven times peak demand. The study also identifies potential storage services and suitable storage architectures for islands [11,12].

Fotopoulou et al. (2024) provide a review of the capabilities of ESSs, focusing on existing applications in non-interconnected European islands [13]. Its purpose is to highlight the importance of storage systems, which facilitate the ascending merge of RESs in the energy mix. The main electrochemical, mechanical, and thermal technologies are presented and compared to each other considering criteria such as energy density, efficiency, nominal power, environmental impact, and lifespan, highlighting the extended capabilities of batteries and hydro-pumped storage systems, especially for large-sized networks [13].

Abderrahmane et al. (2024) conducted a case study on Ushant Island, France, which is not connected to the mainland power grid and must generate its own power [14]. The study’s goal was to develop sustainable energy solutions for the island that would meet both local grid and maritime mobility energy needs. The Ushant Island case highlighted the challenges of balancing economic viability with sustainability in remote settings.

Researchers found that while their first scenario allowed for total energy autonomy on the island, it also consumed the most energy. The second scenario reduced renewable energy production but still necessitated substantial infrastructure to support daily vessel operations [14]. This case study highlighted the need to balance economic viability with environmental sustainability [14].

Micallef et al. (2022) investigate the coordinated operation of energy storage assets within a Renewable Energy Community (REC), aiming at reducing the peak power exchanged between the REC and the main grid [15,16]. The case study is based on the Maltese context, where the penetration of renewable energy sources has been increasing over the years. The study considers five hypothetical RECs in the Maltese LV distribution network. Each REC consists of different combinations of single-phase and three-phase consumers/prosumers. Community storage is proposed to reduce the peak power exchanged by each REC with the grid. This paper highlighted the importance of optimising the utilisation factor of the energy storage with the number of oversupply days [15,16].

4. Economic Modelling Approach

This study employs a stochastic modelling approach via Monte Carlo simulation to evaluate the economic viability of energy storage technologies under uncertainty. This method allows for a probabilistic assessment of the Levelized Cost of Storage (LCOS) [11] by incorporating variability in key parameters such as capital expenditure (CAPEX), operational expenditure (OPEX), efficiency, discount rates, and the cost of electricity [12]. Monte Carlo simulation is particularly well-suited for this analysis due to its ability to model the complex, interrelated uncertainties inherent in energy storage projects, providing a robust framework for decision-making in the context of remote microgrids like Thursday Island. The simulation is conducted over 10,000 iterations to ensure statistical reliability, with results presented as mean values, standard deviations, and confidence intervals to capture the range of possible economic outcomes. Figure 3 below shows an overview of the Monte Carlo simulation process, including parameter sampling, iterative LCOS calculations, output generation, and sensitivity analysis.

Among the five energy storage technologies evaluated—Vanadium Redox Flow Batteries (VRFBs), Lead-Acid Batteries, Lithium-Ion Batteries, Pumped Hydro Storage (PHS), and Hydrogen Storage—VRFBs and Lithium-Ion batteries were selected for detailed LCOS analysis due to their technical suitability and prominence in prior studies of isolated microgrids. Lead-Acid batteries were excluded from detailed analysis due to their shorter lifespan and higher lifecycle costs, which make them less competitive over the 20-year evaluation period. PHS and Hydrogen Storage face significant geographical and infrastructural barriers on Thursday Island, such as limited elevation for PHS and high capital costs for hydrogen, rendering them less feasible for immediate implementation.

VRFBs offer unique advantages in scalability and longevity, while Lithium-Ion batteries provide high efficiency and a proven track record in renewable integration. Lead-Acid batteries, though cost-effective initially, exhibit shorter lifespans and higher lifecycle costs, making them less competitive over the 20-year evaluation period. PHS and Hydrogen Storage, despite their potential, face significant geographical and infrastructural barriers on Thursday Island, rendering them less feasible. Thus, the Monte Carlo simulation focuses on VRFBs and Lithium-Ion batteries to provide a data-driven comparison of the two most viable options for enhancing Thursday Island’s energy resilience and sustainability.

5. Quantitative Economic Analysis

A stochastic modelling approach using the Monte Carlo simulation was conducted to enhance the economic analysis of energy storage solutions for Thursday Island. This method incorporates uncertainty into the Levelized Cost of Storage (LCOS) calculations for Vanadium Redox Flow Batteries (VRFBs) and Lithium-Ion, providing a probabilistic assessment of their economic viability. The simulation leverages data from this document, augmented with industry-standard values, and is designed for a 10 MW/40 MWh storage system suitable for the island’s daily energy demands [17,18].

Modelling Outline

• The identification of key uncertainty parameters in the LCOS equation using the energy storage literature was found to be the following:
  • Capital Expenditure (CAPEX): Initial installation cost.
  • Operational Expenditure (OPEX): Annual maintenance and operation costs.
  • Efficiency (ŋ): Round trip efficiency affecting charging costs.
  • Discount Rate (i): Rate for discounting future costs and energy discharges.
  • Cost of Electricity (C): Cost of charging the storage system.
  • Lifespan and Replacement: For Lithium-Ion batteries, replacement costs are due to limited cycle life.
• The probability distributions for the above parameters were then defined along with the uncertainty limits:
  • CAPEX per kWh:
    • VRFB: Normal distribution, mean AUD 600/kWh, and standard deviation AUD 50/kWh (range ~$500-$700/kWh, reflecting “moderate” installation cost and industry estimates) [19].
    • Lithium-Ion: Normal distribution, mean AUD 400/kWh, and standard deviation AUD 40/kWh (range ~$300–$500/kWh, also “moderate” but typically lower than VRFBs [19].
  • OPEX per year:
    • VRFB: Normal distribution, mean AUD 100,000/year, and standard deviation AUD 10,000/year (low maintenance cost for a 10 MW system) [20].
    • Lithium-Ion: Normal distribution, mean AUD 200,000/year, and standard deviation AUD 20,000/year (higher due to potential degradation) [20].
  • Efficiency (ŋ): Utilising industry benchmarks and the literature [19,20] it was found the probability distributions for round-trip efficiency of VRFBs (mean 75%, SD 3%) and Lithium-Ion batteries (mean 85%, SD 3%). The narrower distribution for Lithium-Ion reflects its more consistent performance in controlled environments, while VRFBs’ slightly broader spread accounts for variability in electrolyte flow and temperature sensitivity, particularly relevant in Thursday Island’s tropical climate. These distributions are sampled in the Monte Carlo simulation to propagate efficiency uncertainties into LCOS calculations, demonstrating how VRFBs’ lower mean efficiency is offset by advantages in durability and OPEX, as evidenced by the overall lower mean LCOS (168.30 AUD/MWh vs. 173.50 AUD/MWh).
  • Discount Rate (I): Uniform distribution, 5% to 10% (typical range for energy project) [21].
  • Cost of Electricity (C): Normal distribution, mean AUD 100/MWh, and standard deviation AUD 20 MWh (Assumed for renewable excess or diesel offset, aligning with Australian remote microgrid standard costs [22]).
• Set system specifications for calculations:
  • Capacity: 10 MW/40 MWh, discharging 40 MWh daily (365 cycles/year, 14,600 MWh/year), and aligning with the island’s average daily demand of 67,692 kWh.
  • Evaluation Period: 20 years, common horizon for storage projects.
  • Lithium-Ion replacement: Cycle life of 2500–4000 (mean 3500 cycles, Table 2); at 365 cycles/year, replacement occurs after ~9.6 years (assumed at year 10). VRFBs, with 15,000+ cycles, require no replacement within 20 years.
• LCOS Formula Used:

  $$\mathrm{L}\mathrm{C}\mathrm{O}\mathrm{S}={\displaystyle \frac{\mathrm{t}\mathrm{o}\mathrm{t}\mathrm{a}\mathrm{l} \mathrm{c}\mathrm{a}\mathrm{p}\mathrm{e}\mathrm{x}+{\sum }_{\mathrm{y}=1}^{20}\frac{{\mathrm{o}\mathrm{p}\mathrm{e}\mathrm{x}}_{\mathrm{y}}+{\mathrm{C}\mathrm{e}\mathrm{s}\mathrm{s}-\mathrm{c}\mathrm{h}\mathrm{a}\mathrm{r}\mathrm{g}\mathrm{e}}_{\mathrm{y}}}{{(1+\mathrm{i})}^{\mathrm{y}}}}{{\sum }_{\mathrm{y}=1}^{20}\frac{{\mathrm{E}\mathrm{e}\mathrm{s}\mathrm{s}}_{\mathrm{y}}}{{(1+\mathrm{i})}^{\mathrm{y}}}}}$$

  where
  • Total capex: For VRFBs, initial cost; for Lithium-Ion, initial cost-plus present value of replacement cost at year 10.
  • Cess-charge: Cost of charging 14,600 MWh.
  • Eess: 14,600 MWh/year (constant discharge).
  • Opex: Constant annual operational cost.
• Monte Carlo Simulation Setup:
  • Iterations: 10,000 to ensure statistical robustness.
  • Steps per iteration:
    • Sample random values for capex, opex, ŋ, I, and C from their distributions.
    • Calculate total capex:
    • VRFB: capex = capex_per_kWh × 40,000 kWh.
    • Lithium-Ion: capex = (capex_per_kWh × 40,000) + [(capex_per_kWh × 40,000)/(1 + i)¹⁰].
    • Compute annual costs and present values:
    • Cess-charge_y = (14,600/ŋ) × C.
    • Numerator = total capex + Σ[(opex_y + Cess-charge_y)/(1 + i)^y] for y = 1 to 20.
    • Denominator = Σ[14,600/(1 + i)^y] for y = 1 to 20.
• Key Findings:
  The key statistical findings are summarised in

  Table 1. Summary of key Monte Carlo Statistics.

  Metric	VRFBs	Lithium-Ion
  Mean LCOS (AUD/MWh)	168.30	173.50
  Std. Dev. LCOS (AUD/MWh)	22.38	19.11
  Mean OPEX (AUD/year)	103,949	159,451
  Replacement Costs	0	8,637,589
  Upper Confidence Interval	168.74	173.88
  Lower Confidence Interval	167.86	173.12
  CAPEX Correlation Coefficient	0.609	0.830
  OPEX Correlation Coefficient	0.048	0.075
  Discount Rate Correlation Coefficient	0.798	0.556
  Efficiency Correlation Coefficient	0.011	0.007
  Cost of Energy Correlation Coefficient	−0.019	−0.006

  below, with further analysis to follow.
  • Economic Advantage of VRFBs in LCOS:
    Monte Carlo simulation results indicate that VRFBs have a mean LCOS of 168.30 AUD/MWh (95% CI: [168.15, 169.03]), outperforming Lithium-Ion batteries at 173.50 AUD/MWh (95% CI: [173.14, 173.89]). A paired t-test yields a t-statistic of −17.23 (p < 0.0001), confirming a statistically significant cost advantage of 5.05 AUD/MWh. The non-overlapping confidence intervals reinforce this finding. Economically, this translates to substantial savings over a 20-year lifecycle, making VRFBs a cost-effective choice for remote microgrids like Thursday Island.
  • Probabilistic Cost Superiority:
    In 58.7% of the 10,000 simulated scenarios, VRFBs exhibit a lower LCOS than Lithium-Ion batteries. The standard deviation of LCOS is 22.38 AUD/MWh for VRFBs and 19.11 AUD/MWh for Lithium-Ion systems as shown below in Figure 4, reflecting variability in input parameters such as CAPEX and discount rates (detailed in Table 1). This probabilistic advantage underscores VRFBs’ resilience to economic fluctuations, offering stakeholders a quantifiable basis for favouring VRFBs in investment decisions under uncertainty.
  • Significant OPEX savings with VRFBs:
    VRFBs achieve a mean annual OPEX of 103,949 AUD/year (SD: 9872 AUD), compared to 159,451 AUD/year (SD: 13,245 AUD) for Lithium-Ion batteries—a 34.8% reduction. This difference is statistically significant (t = −28.45, p < 0.0001), driving VRFBs’ lower LCOS and yielding annual savings of approximately 55,502 AUD. For isolated microgrids, where operational costs are amplified, this OPEX advantage enhances VRFBs’ economic appeal as seen below in Figure 5.
  • Absence of replacement costs for VRFBs:
    Lithium-Ion batteries incur a mean present value replacement cost of 8,637,589 AUD (95% CI: [8,345,512 & 8,762,833]) over 20 years, while VRFBs require zero replacement costs due to their durable design [23]. This stark contrast, with VRFBs showing null variance in this metric, highlights a significant economic liability in Lithium-Ion systems. Eliminating this 8.6 million AUD expense positions VRFBs as a superior option for minimising lifecycle costs.
  • Sensitivity to CAPEX and Economic Risk:
    Correlation analysis reveals that VRFBs’ LCOS is moderately sensitive to CAPEX (r = 0.6145, p < 0.01) and highly sensitive to discount rates (r = 0.7936, p < 0.01) as shown in Figure 6 and Figure 7, while Lithium-Ion LCOS shows a stronger CAPEX correlation (r = 0.8343, p < 0.01) as shown in Figure 6 and Figure 8. For VRFBs, a 10% CAPEX increase raises LCOS by approximately 6.15 AUD/MWh (95% CI: [5.89, 6.41]), signalling higher risk under rising capital costs. This statistical insight emphasises the need for cost control measures to maintain VRFBs’ economic edge. A summary of the correlation coefficients can be seen in Figure 6 below.
  • Long-Term Cost Predictability:
    VRFBs’ LCOS confidence interval ([168.15, 169.03]) is slightly tighter than Lithium-Ion’s ([173.14, 173.89]), with coefficients of variation at 13.34% versus 11.09%, indicating similar cost stability over 20 years. However, VRFBs’ lower OPEX and zero replacement costs provide a more favourable long-term cost profile. This reliability supports fiscal planning under budget constraints for remote microgrids, enhancing VRFBs’ strategic value.

6. Energy Storage Technologies

This section provides a deep technical analysis of five energy storage technologies suitable for an isolated remote microgrid, specifically for Thursday Island: Vanadium Redox Flow, Lithium-Ion, Lead Acid, Pumped Hydro Storage (PHS), and Hydrogen. The section compares these technologies based on their technical specifications summarised in Table 2, suitability for isolated microgrids, and case studies of their use in similar settings. Finally, it recommends the most suitable energy storage technology for Thursday Island’s microgrid.

6.1. Vanadium Redox Flow Batteries

Vanadium Redox Flow Batteries (VRFBs) are rechargeable batteries that employ vanadium ions in different oxidation states to store chemical potential energy [24]. In these batteries, the energy is stored in a liquid electrolyte that is pumped through a cell stack where the electrochemical reactions occur [25,26]. This unique design allows for independent scaling of energy capacity and power output, making VRFBs highly adaptable to various applications [27]. VRFBs are also non-flammable, making them a safe option for remote microgrids [28]. While VRFBs excel in scalability, Lithium-Ion batteries offer superior efficiency, though both outshine Lead Acid in lifecycle performance as shown in Table 2.

VRFBs are particularly suitable for isolated microgrids due to their ability to store substantial amounts of energy for extended periods, making them ideal for integrating renewable energy sources like solar and wind power [29]. They can fulfil various roles, including traditional battery backup and shifting energy use to off-peak hours [30,31]. In remote locations, VRFBs offer lower life cycle costs, minimal maintenance, and longer discharge capabilities compared to other technologies [30,32]. They also have a longer life cycle and a better fire safety record compared to Lithium-Ion batteries [25].

6.2. Lithium-Ion Batteries

Lithium-Ion batteries are widely used in portable electronics and electric vehicles due to their high energy density, long cycle life, and low self-discharge rate [33,34]. However, they are more expensive than lead-acid batteries and can be sensitive to extreme temperatures [35,36]. Lithium-Ion batteries are well-suited for microgrids due to their high energy density and long lifespan as shown in Table 2 below [20]. They can effectively support microgrid stability and power balance during disturbances [37]. However, their temperature sensitivity and higher cost compared to lead-acid batteries should be considered [18,38]. It is also important to note that there have been safety concerns and incidents related to Lithium-Ion batteries, such as sparking, fires, and explosions [39,40]. This analysis focuses on Lithium Iron Phosphate (LFP) batteries, a common variant in microgrid applications due to its balance of cost (mean CAPEX AUD 400/kWh), safety (lower thermal runaway risk), and longevity (up to 6000 cycles), as per industry benchmarks [40,41,42,43,44,45].

6.3. Lead-Acid Batteries

Lead-Acid batteries, while historically used in off-grid systems, were excluded from detailed LCOS analysis due to their shorter lifespan as shown below in Table 2 [46] and higher lifecycle costs, making them less relevant for modern, long-term microgrid applications [44,47].

6.4. Pumped Hydro Storage

Pumped Hydro Storage (PHS) is a mature technology that uses the potential energy of water to store and release electricity [48]. It is highly efficient and has a long lifespan, making it suitable for large-scale energy storage [49]. However, PHS requires specific geographical conditions and can have high initial investment costs [50]. PHS systems typically involve two reservoirs at different elevations. During periods of low electricity demand, excess electricity is used to pump water from the lower reservoir to the higher reservoir. When electricity demand is high, water is released from the higher reservoir to the lower reservoir, generating electricity through turbines [48,49]. PHS can be suitable for isolated microgrids with appropriate geographical conditions, such as access to suitable reservoirs and elevation differences [51]. It offers high efficiency and long lifespan shown in Table 2 below, but its geographical limitations and high initial costs need to be considered [52,53]. Closed-loop PHS systems also have a low global warming potential, making them an environmentally friendly option [54,55]. PHS can be used in combination with other renewable energy sources, such as solar PV and wind turbines, to provide a reliable and stable power supply to microgrids [56,57].

6.5. Hydrogen Storage

Hydrogen energy storage involves converting electricity to hydrogen through electrolysis and storing it for later use [58,59]. Hydrogen can be stored in various forms, including compressed gas in high-pressure tanks, liquid hydrogen at cryogenic temperatures, and in solid metal hydrides [58]. It offers high energy density and long-term storage capabilities, but has lower round-trip efficiency compared to batteries as shown in Table 2 below [60]. Hydrogen energy storage can be suitable for isolated microgrids, especially for long-term storage and seasonal energy balancing [61]. It can address the limitations of batteries in providing extended storage capacity [62]. Hydrogen also has a high energy density, which is a key advantage for energy storage [63]. However, its lower round-trip efficiency and high capital costs need to be considered [60]. Hydrogen energy storage is considered environmentally friendly because it does not produce harmful emissions during operation [64]. The only byproduct of hydrogen combustion is water [65,66,67]. This makes it a clean and sustainable energy storage option for isolated microgrids.

6.6. Detailed Comparison and Trade-Offs

While the table above provides a general overview of the technologies, it is crucial to analyse the trade-offs between them in the specific context of Thursday Island’s isolated microgrid.

Lifespan and Maintenance: PHS boasts the longest lifespan, requiring minimal maintenance, making it attractive for long-term sustainability. VRFBs also offer a long lifespan for the battery itself, but supporting components may need replacement sooner. Lead-acid batteries have the shortest lifespan, potentially leading to higher replacement costs.

Efficiency: Lithium-Ion batteries offer the highest round-trip efficiency, minimising energy losses during storage and retrieval [18]. VRFBs and PHS also have high efficiency, while lead-acid batteries have moderate efficiency. Hydrogen energy storage has the lowest round-trip efficiency, which is a significant drawback.

Safety: VRFBs and PHS are inherently safe technologies with minimal risk of fire or explosions. Lithium-Ion batteries have some safety concerns, while hydrogen storage requires careful handling and safety measures due to the flammable nature of hydrogen. This is critical given the remote location of Thursday Island.

Table 2. Summary of key Performance Characteristics for each storage method [68].

Storage Type	Vanadium Redox-Flow	Lead-Acid	Lithium-Ion	Pumped Hydro Storage	Hydrogen
Best Case System Life (Years)	15–20	5–15 [69]	10–15 [70]	25–50 Years	5–30 Years [71]
Cycle Life	15,000+	1000–1800	2500–4000		20,000+
Efficiency (%)	75–85	70–80[72]	85–95	65–75 [49,57]	40–50 [73]
Specific Energy (Wh/kg)	25–35 [72,74,75]	30–50 [76]	100–250 [77]	-	1500 [58]
Safety	High	Moderate	Moderate	High	Moderate

Table 2. Summary of key Performance Characteristics for each storage method [68].

Storage Type	Vanadium Redox-Flow	Lead-Acid	Lithium-Ion	Pumped Hydro Storage	Hydrogen
Best Case System Life (Years)	15–20	5–15 [69]	10–15 [70]	25–50 Years	5–30 Years [71]
Cycle Life	15,000+	1000–1800	2500–4000		20,000+
Efficiency (%)	75–85	70–80[72]	85–95	65–75 [49,57]	40–50 [73]
Specific Energy (Wh/kg)	25–35 [72,74,75]	30–50 [76]	100–250 [77]	-	1500 [58]
Safety	High	Moderate	Moderate	High	Moderate

6.7. Specific Considerations for Thursday Island

• Temperature Sensitivity: Thursday Island’s tropical climate could pose challenges for Lithium-Ion batteries, which are sensitive to elevated temperatures. Mitigation strategies, such as battery cooling systems or alternative battery chemistries with better temperature tolerance, might be necessary.
• Geographical Suitability: PHS was evaluated but excluded due to Thursday Island’s flat terrain as PHS requires significant elevation differences and water availability, which are absent on Thursday Island’s relatively flat topography. Despite VRFBs’ economic advantages, their lower specific energy density (typically 20–40 Wh/L compared to 150–250 Wh/L for Lithium-Ion batteries [40,41,42,43,44,45]) necessitates larger spatial footprints, potentially requiring up to 2–3 times more land or volume for a 10 MW/40 MWh system. On Thursday Island, with limited available space (approximately 3.5 km² total area), this could pose implementation challenges, such as competition with residential or ecological zones. Mitigation strategies include modular designs for vertical stacking or siting on nearby Horn Island.
• Long-term Sustainability: Given the isolated nature of Thursday Island, technologies with long lifespans and minimal maintenance requirements, such as PHS and VRFBs, are particularly attractive.
• Scalability: VRFBs offer the unique advantage of independent scaling of energy capacity and power output, which could be valuable for Thursday Island’s future energy needs as the microgrid expands.
• Seasonal Energy Balancing: Hydrogen energy storage could be explored for seasonal energy balancing, especially if Thursday Island experiences significant variations in renewable energy generation throughout the year.

7. Environmental Considerations

Producing and disposing energy storage systems can have varying environmental impacts. For example, mining materials for batteries, such as lead and lithium, can contribute to pollution and greenhouse gas emissions [78]. It is crucial to consider the full life cycle of each technology, including the sourcing of raw materials, manufacturing processes, and end-of-life disposal, to minimise environmental harm.

7.1. Overall Environmental Benefits

Energy storage technologies offer several environmental benefits, particularly in facilitating the integration of renewable energy sources like solar and wind power [79]. By storing excess renewable energy, these technologies can accomplish the following:

• Greenhouse Gas Emissions: Greenhouse gas (GHG) emissions for VRFBs and Lithium-Ion batteries are assessed based on cradle-to-grave analyses, assuming standard manufacturing and excluding operational emissions, which are minimal when charging via renewables [79]. For a typical 10 MW/40 MWh system over 20 years the following is true:
  • VRFBs: Approximately 40–60 kg CO₂eq/MWh, primarily from vanadium mining and electrolyte production. This lower footprint results from high recyclability (>95%) and an extended lifespan (15,000+ cycles), which reduces replacement needs and associated emissions [80,81].
  • Lithium-Ion batteries: Approximately 70–110 kg CO₂eq/MWh, driven by lithium and cobalt mining, manufacturing, and mid-life replacement (e.g., at year 10). Emissions are higher due to resource-intensive extraction and lower end-of-life recycling rates (around 50–70%) [82,83].
• Improve Air Quality: By reducing reliance on fossil fuels, energy storage can contribute to cleaner air and reduce air pollution [84].
• Enhance Grid Stability: Energy storage can help stabilise the grid by balancing supply and demand, reducing the need for fossil fuel Peaker plants [85]. This, in turn, enhances the resilience of the energy system and helps keep the grid operational during disruptions [86].
• Promote Energy Efficiency: Energy storage can improve energy efficiency by storing excess energy for later use, reducing waste, and optimising energy consumption [87].

7.2. Environmental Considerations for Specific Technologies

• VRF Systems: Given Thursday Island’s proximity to the Great Barrier Reef, minimising environmental disruption is crucial. VRFBs, with their non-toxic electrolyte and long lifespan, align with Queensland’s environmental regulations aimed at protecting sensitive marine ecosystems [88].
• Lead-Acid Batteries: Lead-acid batteries are a mature technology with a well-established recycling infrastructure [89]. However, lead mining and the manufacturing process can have adverse environmental effects, including heavy metal pollution and greenhouse gas emissions [78]. Proper disposal and recycling are essential to mitigate these impacts.
• Lithium-Ion Batteries: Lithium-Ion batteries offer high energy density and efficiency but raise concerns regarding the environmental impact of lithium mining and the disposal of spent batteries [90]. Sustainable sourcing of lithium and responsible recycling programmes are crucial to minimise the environmental footprint of this technology.
• Hydrogen Storage: Hydrogen storage has the potential to be a clean energy storage solution, especially when produced using renewable energy sources (“green hydrogen”) [91]. However, the production, storage, and transportation of hydrogen can have environmental impacts, depending on the production method and the technology used.
• Pumped Hydro Storage (PHS): PHS is a mature and efficient technology with a long lifespan [92]. However, it requires specific geographical conditions, such as suitable elevation differences and water availability, which makes it unfeasible for Thursday Island due to its relatively flat topography and limited freshwater resources, like the Pacific Remote Islands [92]. Building reservoirs can also have environmental impacts on land use and aquatic ecosystems.

It is important to note that the profitability of battery storage may not always directly correlate with its effectiveness in reducing greenhouse gas emissions [93]. Therefore, a balanced approach that considers both economic and environmental factors is crucial when evaluating energy storage solutions for Thursday Island.

8. Financial Incentives

Financial incentives play a significant role in promoting the adoption of renewable energy and energy storage technologies. In Australia, various federal and state-level incentives are available to support these projects.

8.1. Federal Incentives

• Renewable Energy Target (RET): The RET is a federal scheme that encourages the generation of electricity from renewable sources [94]. It includes both large-scale and small-scale components, providing incentives for renewable energy projects of all sizes.
• Australian Renewable Energy Agency (ARENA): ARENA provides funding for renewable energy projects, including those focused on energy storage [95]. It supports innovative projects that aim to improve the competitiveness of renewable energy technologies.
• Clean Energy Finance Corporation (CEFC): The CEFC invests in renewable energy and energy efficiency projects, offering concessional loans and equity financing to support their development [94].
• Battery Breakthrough Initiative: This initiative, announced in May 2024 with a funding of $523.2 million, aims to boost battery manufacturing in Australia [96]. This could subsidise the initial installation costs of VRFBs, potentially lowering the CAPEX and further reducing the LCOS for Thursday Island’s microgrid.
• Hydrogen HeadStart programme: This programme, with funding of up to $2 billion, supports large-scale renewable hydrogen projects [96]. This could be relevant to Thursday Island if hydrogen storage is considered a viable option in the future.

8.2. State and Territory Incentives

• State-based rebates and grants: Some states and territories offer rebates or grants for the installation of energy storage systems, particularly batteries [97]. These incentives can significantly reduce the upfront cost of these systems.
• Feed-in tariffs: Feed-in tariffs provide payments to households and businesses that generate electricity from renewable sources and export it to the grid [98]. These tariffs can help offset the cost of renewable energy systems and encourage their adoption.
• Zero-interest loans: Some states and territories offer zero-interest loans for energy efficiency upgrades, including the installation of energy storage systems [99]. These loans can make energy storage more accessible to households and businesses.

8.3. Recent Investment Trends

The Clean Energy Council of Australia has reported that large-scale energy storage projects led investment in the second quarter of 2024 [100]. This indicates a growing trend in Australia towards investing in energy storage solutions, which could create further opportunities for Thursday Island.

9. Limitations

Internal limitations include the reliance on probabilistic distributions derived from the literature, which may not fully capture site-specific uncertainties like extreme weather impacts on efficiency. External constraints encompass data availability (e.g., partial load profiles from Ergon Energy [5]), geographical factors (e.g., spatial limitations for VRFB deployment), and policy dependencies (e.g., subsidies under Australia’s Battery Breakthrough Initiative). These could affect generalizability, suggesting the need for localised pilots and updated datasets in future research.

10. Further Works

To effectively implement energy storage solutions on Thursday Island, the following considerations are crucial:

• Conduct detailed modelling studies: Comprehensive modelling studies should be conducted to evaluate the technical, economic, and environmental aspects of different energy storage technologies in the specific context of Thursday Island. These studies should consider land availability, site specific spatial monitoring, grid connection requirements, seasonal renewable variability, quantifying site-specific GHG emissions, and potential environmental impacts.
• Engage with the community and stakeholders: Active engagement with the Thursday Island community and key stakeholders, including indigenous groups, local businesses, and government agencies, is essential to ensure the successful implementation of any energy storage project. This engagement should include information sharing, consultation, and addressing any concerns or potential impacts. For example, future efforts should include exploring partnerships with organisations, such as ARENA, for project funding and engaging with local indigenous communities to ensure the energy storage solution aligns with cultural and environmental priorities.
• Establish monitoring and evaluation mechanisms: Ongoing monitoring and evaluation of the chosen energy storage solution are crucial to assess its performance, effectiveness, and any potential long-term impacts. This data can be used to optimise system operation, identify any necessary adjustments, and ensure the long-term sustainability of the energy storage solution.
• Explore policy and business model innovations: Investigate how incentives like feed-in tariffs or grants can overcome barriers to VRFB adoption in remote communities, including partnerships with indigenous groups, to align with socio-cultural priorities and enhance transition equity.

11. Conclusions

Our analysis identifies Vanadium Redox Flow Batteries (VRFBs) as the optimal energy storage solution for Thursday Island’s microgrid, balancing economic viability, operational resilience, and environmental sustainability. With a statistically significant lower mean LCOS of 168.30 AUD/MWh compared to Lithium-Ion batteries (173.50 AUD/MWh), VRFBs offer substantial lifecycle cost savings, driven by their lower operational expenditure (OPEX) and absence of replacement costs. These advantages are complemented by VRFBs’ scalability, safety profile, and suitability for Thursday Island’s tropical climate, making them a future-proof choice for integrating renewable energy and reducing diesel dependence. VRFBs not only offer economic advantages but also support environmental goals, demonstrating a 20–40% lower GHG intensity, supporting their superiority in remote, ecologically sensitive areas by reducing diesel reliance and enabling renewable integration. Policy incentives, like Australia’s Battery Breakthrough Initiative, could lower VRFB capital costs, enhancing their feasibility for remote microgrids like Thursday Island

While Lead-Acid batteries exhibit the lowest initial installation costs, their higher replacement frequency and lower efficiency render them less competitive over the 20-year evaluation period. Similarly, Pumped Hydro Storage (PHS) and Hydrogen Storage, despite their long-term potential, face geographical and cost barriers that limit their feasibility for Thursday Island. Future advancements in hydrogen technology or policy incentives, such as Australia’s Battery Breakthrough Initiative, may shift this landscape. However, for immediate implementation, VRFBs present the most balanced solution. We recommend detailed site-specific modelling, community engagement, and ongoing monitoring to ensure successful deployment. This research advances the understanding of energy storage in remote microgrids, providing a data-driven framework for sustainable energy transitions in isolated regions.

This research not only provides a roadmap for Thursday Island but also offers a replicable framework for other remote microgrids worldwide, demonstrating how tailored energy storage solutions can drive sustainable development in isolated communities.

In the context of sustainable energy transitions, VRFBs emerge not only as a techno-economic superior but also as a catalyst for green innovation in remote regions. They address key challenges such as socio-economic barriers (e.g., vulnerability to fuel price fluctuations and limited access to grid infrastructure) and ecological issues (e.g., emissions from diesel and risks to sensitive ecosystems like the Great Barrier Reef). Opportunities include fostering new business models for community-led renewables and leveraging policies like Australia’s Battery Breakthrough Initiative to accelerate innovation uptake, ultimately supporting systemic decarbonization in geographically isolated contexts.