Reservoir Hydro

Reservoir hydro is modelled as a flexible, energy-constrained generation source with zero short-run marginal cost, reflecting its typical position in the NEM dispatch merit order.

Role in the market

Hydro plays a strategic role in balancing the system, particularly during periods of high demand or low renewable output. The model treats hydro as fully flexible within physical limits, capable of shifting energy over time to respond to changing market conditions.

Energy limitation and strategic behaviour

Rather than assuming unlimited generation within capacity bounds, the model recognises that hydro is energy-limited - constrained by water availability over time. A core feature of the model is a dynamic adjustment mechanism that increases or decreases hydro availability depending on system conditions:

• When renewables are scarce and demand is high, the model increases hydro dispatch availability, simulating strategic water release.
• When renewable output is abundant, hydro output is reduced, simulating conservation for future use.

This behaviour reflects how hydro operators manage storage to capture value during periods of system stress or price volatility.

How reservoir hydro operates in our model

Hydro plants are grouped by substate and operator, with simplified assumptions applied for ramping flexibility, outages, and availability. While hydro is not explicitly modelled to provide FCAS in this version, capacity allocated to ancillary services is excluded from the model to avoid double counting.

In our model, reservoir hydro is modelled as a zero-marginal-cost, strategically dispatched, energy-limited resource. Its flexibility and ability to shift generation across time makes it a critical enabler of system reliability and renewable integration, especially during periods of volatility or renewable droughts.