Key takeaway: Reservoir hydro is modelled with opportunity-cost-based S-curve bidding, supplemented by a dynamic LDES shift mechanism that increases output when residual demand exceeds critical thresholds.
Reservoir hydro is modelled as a flexible, energy-constrained generation source with opportunity-cost-based bidding using S-curves, reflecting its strategic 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. Available hydro generation is derived from historical output and scaled using a dynamic Long Duration Energy Storage (LDES) shift mechanism that adjusts hydro output based on residual demand conditions.
The LDES shift is calculated from residual demand analysis (demand minus renewable generation):
- High residual demand (above 2.5x the yearly mean): A shift factor of 1.0 is applied, effectively doubling hydro output during periods of extreme system stress.
- Moderate residual demand (between 1.2x and 2.5x the yearly mean): The shift factor scales linearly between 0 and 1.0, providing a proportional increase.
- Low residual demand (below 1.2x the yearly mean): No shift is applied, and hydro generation follows the base historical profile.
- Negative residual demand: Days with negative residual demand are shifted downwards, ensuring that the additional energy from upward shifts on high-demand days is balanced across the year so that the total annual energy budget is preserved.
This approach replaces a previous fixed scaling multiplier, and ensures that hydro generation dynamically responds to system conditions - increasing output during periods of high stress when the system needs it most, while preserving energy budgets during calmer periods.
The scaled energy budget is then allocated across the year using the historical monthly generation profile as a guide, preserving seasonal patterns in water availability.
How reservoir hydro operates in the 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.
Reservoir hydro is modelled as an opportunity-cost-based, 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.