Curtailment and Grid Risk

A battery’s revenue depends on its specific location within a NEM region. Due to network congestion, the local price at that location can differ from the official regional price. The model captures this “grid risk,” which can lead to grid 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 capture this, the nodal fundamentals model solves a transmission network with over 200 nodes across the NEM. Each node can have a distinct local price that reflects local supply and demand balances and the congestion of the lines connecting it to the rest of the network.

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 of the state.

This creates a critical distinction for market participants: while a battery connected at a node elsewhere in the region will bid and operate based on its own local price signal, it is ultimately paid (or pays) for its energy based on the official RRN price for that region.

How the model simulates this

The 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 at the battery’s connection point node 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), adjusted for the asset’s forecast Marginal Loss Factor. 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 grid risk

The difference between the local price at an asset’s node and the RRP is known as grid 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 grid curtailment, where a dispatch decision that appears profitable based on the local price results in a loss once settled at the RRP.

Example:

• High demand and low renewable generation results in a high price of $300/MWh in New South Wales
• The battery would get paid this high price if it was dispatched, meaning it would likely be optimal from a battery revenue perspective for it to discharge
• Transmission congestion means that renewable generation near the battery’s node can’t be fully transmitted to the rest of the region, so it gets curtailed
• Curtailment of renewables near the battery’s node results in a low local price of -$15/MWh at that node
• The dispatch model (or in reality, NEMDE, AEMO’s central dispatch engine) dispatches the battery based on its low local price as opposed to the RRN price for New South Wales
• This means that the battery is curtailed and does not discharge, even though it would be optimal for it to do so based on the RRN price for New South Wales

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