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). Hydro output is shifted upwards on days of high residual demand, with the largest uplift during periods of extreme system stress, and shifted downwards on days of low or negative residual demand. The upward and downward shifts balance out across the year, preserving the total annual energy budget.
This 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.