Estimating WEM Spot Revenues

In our submission to the WEM Market Effectiveness review, we estimated spot revenues for all non-scheduled wind and solar power plants in the WEM in order to compare against estimated revenue requirements (see figure above for wind farm spot revenues in CY 2021). This post will describe how these spot revenue estimates were calculated.

Spot revenues are the implied revenues that a power plant would receive if it were a merchant facility and completely exposed to the Balancing Market and Large-scale Generation Certificate (LGC) spot market, i.e. it did not have any Power Purchase Agreements for either energy or LGCs. In almost all cases, spot revenues do not reflect the true revenue that a plant receives (as there are typically some bilateral contracts in place), but it does provide an indication of profitability and plant performance.

Spot revenues in the WEM comprise three components:

– Spot Balancing Market (energy) revenue

– Spot Large-scale Generation Certificate (LGC) revenue

– Reserve Capacity Mechanism revenue

Spot Balancing Market Revenue

Spot Balancing Market revenues are first calculated on a half-hourly basis by multiplying:

1. SCADA metered sent-out energy (MWh) generated during the half-hour trading interval; and

2. Final Balancing Market price ($/MWh) for the trading interval

The half-hourly spot revenues are then aggregated over the period being assessed, e.g. a calendar year.

Spot LGC Revenue

LGCs are created for every 1 MWh of eligible renewable energy generated (according to a set formula). For the purposes of the estimated spot LGC revenue, the calculation below is used:

LGC revenue = Sent-out generation x Marginal Loss Factor x LGC Spot Price

The appropriate Marginal Loss Factor (MLF) for the facility connection point can be found on the AEMO website.

Daily LGC spot price can be found from LGC market trading websites such as Demand Manager or Mercari.

Reserve Capacity Mechanism Revenue

Reserve Capacity Mechanism (RCM) revenues are annual payments to eligible facilities for providing capacity in the WEM. The RCM revenue for a facility can be calculated by multiplying:

1. The Reserve Capacity Price for a particular capacity year; and

2. The Capacity Credits assigned to the facility for the capacity year

Note that the WEM capacity year runs from 1 October to 1 October (the following year). Adjustments may need to be made to estimate RCM revenues for a calendar or financial year. For example, a coarse adjustment for a calendar year (say 2021) would be to apportion 75% of RCM revenues from capacity year 2020-2021 and 25% from capacity year 2021-2022.