Key takeaway: Contracting strategies value tolls, revenue swaps and cap-and-floor agreements such as the Capacity Investment Scheme (CIS) and New South Wales (NSW) Long-Term Energy Service Agreements (LTESAs) against a battery's forecast revenue. They use the contracting module shared with Modo Energy's other regions and never change how the battery is dispatched.
Contracts settle after dispatch against the battery’s own revenue
The battery is dispatched to maximise merchant revenue first. Each contract then compares its price with the battery’s total revenue per megawatt (MW) in each settlement period, and one party pays the other the difference. Total revenue includes energy arbitrage, Frequency Control Ancillary Services (FCAS) and any cap contract revenue, after the Marginal Loss Factor (MLF) adjustment.
Settlement is annual by default, or monthly. Prices are quoted per MW per settlement period, so in $/MW/year under annual settlement, and can also be entered per kilowatt (kW) or per month. A settlement period that does not sit fully inside the forecast horizon is not settled.
Three contract types cover the common offtake structures
- Toll: the owner receives a fixed price on the contracted capacity in place of its market revenue. Physical tolls, virtual tolls and capacity swaps all settle this way and use this type.
- Revenue swap: the counterparty tops up revenue that falls below a floor price. Above the floor, the owner keeps the participation rate share of the excess and returns the rest.
- Cap and floor: the counterparty pays a set share of any shortfall below the floor price, up to an optional payment limit per settlement period, and the owner returns a set share of any revenue above the cap price. Both shares default to 100%, which gives a symmetric collar in the shape of an NSW LTESA. A Federal CIS-style agreement is set by entering partial shares, such as 90% of the shortfall and 50% of the excess. A cap price entered without a floor price treats the floor as zero.
Every contract shares a common set of inputs
| Input | Description |
|---|---|
| Name | Label used in the outputs |
| Contracted capacity (MW) | Share of the battery covered. Settlement scales with contracted MW divided by nameplate |
| Start and end date | Contract term |
| Settlement period | Annual (default) or monthly |
| Price unit | Per MW or per kW, per year or per month |
| Discount rate | Used only to derive the fair value, default 10% |
The type-specific inputs are the fixed price for a toll, the floor price and participation rate for a revenue swap, and the floor price, cap price, the two shares and the payment limit for a cap and floor.
A blank price returns the fair value
When no price is entered, the model reports the fair value only: the constant price at which the discounted settlements over the contract term net to zero. For a toll this is the discounted average of forecast revenue per MW. For a revenue swap or a cap and floor, the breakeven floor is solved numerically.
Stacked contracts settle independently
Several contracts can be attached to one battery. Each settles against the same pre-contract revenue, and the settlements are added together. Contracted capacity is not capped at nameplate, so contracts that together exceed the battery’s capacity over-hedge it.
Settlements are reported alongside merchant revenue
- Contract settlement: monthly and yearly $/MW for each priced contract, included in total battery revenue.
- Fair value: yearly $/MW of the whole battery, scaled by the contracted share.
- Price versus fair value: the yearly premium of an entered price over the fair value.
- Probabilistic revenues: each Monte Carlo sample settles every contract, and a contract without a price is settled at its central-case fair value.
The contract terms are also listed in the run summary.
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.