Curtailment

A battery's revenue depends on its specific location within a NEM region. Due to network congestion, the local price can differ from the official regional price. Our model captures this "basis risk," which can lead to economic curtailment and impact profitability.

Regional pricing in the NEM

The NEM is divided into five main regions (QLD, NSW, VIC, SA, TAS), each with its own Regional Reference Price (RRP). However, these regions are geographically vast and can experience internal network congestion.

To manage this, some regions in the model are divided into smaller sub-regions or zones. For example, Queensland contains multiple zones such as North Queensland (NQ), Central Queensland (CQ), and South Queensland (SQ). Each of these zones can have a distinct local price that reflects local supply and demand balances.

Regional Reference Nodes (RRN)

The official spot price for a region, the RRP, is determined at a single location known as the Regional Reference Node (RRN). For example, the RRN for the entire Queensland region is located in the south (SQ).

This creates a critical distinction for market participants: while a battery located in North Queensland will bid and operate based on its local NQ price signal, it is ultimately paid (or pays) for its energy based on the official RRN price in SQ.

How our model simulates this

Our dispatch model simulates this market structure using two separate price streams in its optimisation and reporting:

1. Dispatch signal: The optimisation algorithm uses the forecast local price of the battery's sub-region to make its charging and discharging decisions. This mimics how a real-world asset operator would react to the price signals at their physical location.

2. Revenue calculation: When calculating the final revenue from the dispatch, the model uses the price from the Regional Reference Node (RRN). This reflects the actual cash flow an asset would receive based on AEMO's official settlement process.

This process improves the accuracy of the revenue forecast.

The impact of basis risk

The difference between the local price at an asset's location and the RRP is known as basis risk. This risk arises primarily from congestion on the transmission network.

When the network is congested, the price at a local node can disconnect significantly from the RRP. This can lead to economic curtailment, where a dispatch decision that appears profitable based on local prices results in a loss once settled at the RRP.

Example:

• A battery in North Queensland sees a high local price of $200/MWh due to a local supply shortage and decides to discharge.
• Simultaneously, an oversupply of generation near the RRN in South Queensland has driven the RRP down to $50/MWh.
• The battery is paid based on the RRP, receiving only $50/MWh for its energy, which may be below its operating cost.

By using both local and RRN prices, our model captures the financial impact of basis risk, providing a more accurate and realistic assessment of a battery's potential revenues in the NEM.