Key takeaway: Contracting strategies allow battery owners to evaluate the financial impact of different offtake structures — tolling agreements, capacity swaps, revenue collars (CIS/LTESA), and revenue swaps — against merchant revenue, without changing the underlying dispatch optimisation.
Post-dispatch valuation
Contracting strategy valuation is applied after battery dispatch has been optimised. It does not influence how the battery is dispatched; instead, it overlays different commercial structures on top of the merchant revenue forecast to produce:
- Fair values: The breakeven contract price derived from the forecast merchant revenue, discounted to present value.
- What-if settlements: If a contract price is provided, the model calculates what the battery’s revenue would be under that contract compared to pure merchant operation.
All contract prices are expressed in $/MW/year. A configurable discount rate (default 10%) is used to compute the present-value-weighted average when deriving fair values.
Strategy types
Four contracting structures are supported. Multiple strategies can be stacked in a single forecast run to model a blended portfolio.
Tolling agreement
A tolling agreement provides a fixed capacity payment ($/MW/year) for all or part of the battery’s capacity. The battery continues to dispatch optimally in the market, but the contracted portion of revenue is replaced by the toll.
- Physical toll and virtual toll subtypes are available for labelling purposes; they are modelled identically.
- Contracted capacity (MW): The portion of the battery covered by the toll. Revenue is split proportionally between contracted (fixed) and uncontracted (merchant) MW.
- Fair value: The discounted average of annual merchant revenue per MW over the contract period.
- What-if: If a fixed price is provided, the model computes the blended revenue (contracted at fixed price, remainder at merchant) and the difference versus full merchant operation.
Capacity swap
A capacity swap splits the battery into a contracted tranche earning a fixed annual fee and a merchant tranche earning market revenue. Dispatch is unified — all MW are dispatched together — but revenue is allocated proportionally.
- Economically identical to a tolling agreement applied to a capacity tranche.
- Fair value and what-if calculations follow the same logic as tolling.
Revenue collar (CIS/LTESA)
A revenue collar is a two-way contract for difference on annual revenue, structured around three price levels:
- Floor price ($/MW/year): Minimum revenue guarantee. If annual merchant revenue falls below the floor, the government tops up a configurable fraction of the shortfall.
- Ceiling price ($/MW/year): Revenue sharing threshold. If revenue exceeds the ceiling, the project returns a fraction of the excess.
- Annual payment cap ($/MW/year): Hard cap on total government support in any single year.
Two preset configurations reflect the major Australian schemes:
| Parameter | NSW LTESA | Federal CIS |
|---|---|---|
| Floor coverage | 100% | 90% |
| Ceiling fraction | 100% | 50% |
Under the NSW LTESA defaults, the collar is symmetric — the government covers the full floor gap, and the project returns the full ceiling excess. Under the Federal CIS defaults, the government covers 90% of the floor gap and the project returns 50% of the ceiling excess.
If no floor or ceiling price is provided, the model derives the breakeven floor (the floor price at which the net present value of settlements equals zero).
Revenue swap
A revenue swap provides floor protection with configurable upside sharing:
- Floor price ($/MW/year): If annual revenue falls below the floor, the counterparty tops up the difference.
- Participation rate: The fraction of upside (revenue above the floor) that the battery owner keeps. The remainder is returned to the counterparty.
For example, with a participation rate of 70%, the owner retains 70% of any revenue above the floor and returns the remaining 30%.
- Fair value: The breakeven floor price where the net present value of all settlements (top-ups received minus upside shared) equals zero. This is solved numerically using bisection.
- What-if: If a floor price is provided, the model calculates the annual top-up, upside shared, and net revenue.
Portfolio stacking
Multiple strategies can be combined in a single forecast. The model tracks each strategy’s settlement independently, then aggregates:
- Total contract settlement per MW: The sum of all individual strategy settlements across every interval.
- Total revenue per MW: Merchant revenue plus the total contract settlement.
CIS/LTESA strategies are applied as a financial overlay on the full battery — they do not partition capacity. Tolling and capacity swap strategies partition capacity, allocating contracted MW to the fixed payment and the remainder to merchant revenue.
Configuration
Each strategy requires the following common inputs:
| Parameter | Description |
|---|---|
| Name | A label for the strategy (e.g. “Virtual Toll 1”) |
| Capacity (MW) | The battery capacity covered by the contract |
| Contract start/end date | Optional date range to limit the contract period |
Strategy-specific parameters (fixed price, floor/ceiling, discount rate, participation rate) are described in the sections above. When optional price fields are left blank, the model derives the fair value only.
Outputs
The model produces per-interval and annual outputs for each strategy:
- Fair value ($/MW/year): The breakeven contract price, derived from the discounted average of merchant revenue.
- What-if revenue ($/MW): Revenue under the contract at the user-specified price, per interval.
- Settlement versus merchant ($/MW): The difference between contracted and merchant revenue, per interval.
- Net revenue ($/MW): For CIS and revenue swap strategies, the merchant revenue adjusted for government payments and project returns.
A strategy summary table aggregates results by year, showing the residual merchant allocation and total portfolio revenue across all stacked strategies.
Why fair values depend on the discount rate
Fair values are computed as a present-value-weighted average of the forecast annual merchant revenue per MW across the contract term, with each year weighted by its discount factor. The result is the constant $/MW/year contract price that would have the same present value as the forecast revenue stream.
The discount rate controls how that weight is distributed across years: a higher rate shifts weight toward earlier years relative to later ones. Whether this pushes the fair value up or down depends on the shape of the forecast revenue stream — a flat stream is rate-insensitive, a declining stream produces a higher fair value at higher rates, and a rising stream produces a lower one. The rate should reflect the project’s cost of capital — broadly, the return required to justify the investment given its financing costs and risk profile.
Using a non-zero discount rate gives extra weighting to revenues in the first few years; a simple average (0% rate) is indifferent across the contract term.