×
π Complete Model Documentation & Methodology
π’ About Aurora Energy Research
Aurora Energy Research is the gold standard for Australian energy market forecasting. Investment banks, major utilities, and renewable developers rely on Aurora's data for billion-dollar investment decisions. Their November 2024 forecast incorporates the latest policy changes, transmission projects, and market dynamics.
β‘ The Great NEM Transformation (2025-2050)
The numbers tell a dramatic story: Australia's National Electricity Market is undergoing the most significant transformation in its history. Here's what's driving the volatility you see in the spread charts:
2025-2030
The Coal Cliff:
- π Eraring (NSW): 2.88 GW closing Aug 2025 - Australia's largest coal plant
- π Callide B (QLD): 700 MW closing 2028
- π Vales Point B (NSW): 1.32 GW closing 2029
- π Gladstone (QLD): Units progressively closing from 2029
π₯ Impact: ~7 GW of 24/7 baseload vanishing. Evening peaks hit $300-500/MWh regularly. Duck curve deepens with solar flooding midday to negative prices. Perfect for 4-hour BESS arbitrage.
2030-2035
The Transition Valley:
- π Yallourn (VIC): 1.48 GW closing 2028
- π Bayswater (NSW): 2.64 GW units start closing 2033
- π Loy Yang A (VIC): 2.2 GW closure announced for 2035
π₯ Impact: Spreads temporarily compress as massive utility-scale batteries come online (30+ GWh). But evening demand keeps growing. The smart money is already positioned.
2035-2050
The Renewable Dominance Era:
- π Coal completely gone by 2038 (except Mt Piper)
- π Over 50 GW of utility solar installed
- π¨ 25+ GW of wind (onshore + offshore)
- β‘ Snowy 2.0, HumeLink, Marinus Link all operational
π₯ Impact: Extreme volatility returns. 6-hour and 8-hour storage becomes critical. Gas peakers hit $15,000/MWh price cap during "dunkelflaute" events (no wind, no sun). That spike in 2050? That's the last gas plants exercising market power.
π Why The Spreads Look "Jumpy"
The scatter in the spread vs wholesale chart isn't random - it's the market responding to massive structural changes:
- 2026-2027 NSW spike: Eraring closure impact before transmission upgrades
- 2029 volatility: Multiple closures coinciding, REZ delays
- 2032 compression: Kurri Kurri gas + big batteries temporarily oversupply flexibility
- 2035+ increase: Electrification demand surge (EVs, heat pumps, hydrogen)
- 2050 spike: Final coal gone, gas plants have pricing power before hydrogen takes over
π― How We Capture Value
Aurora Base Case (4h Duration):
Storage Spread: $160.5/MWh β’ Wholesale: $75.9/MWh
Forecasts extend to 2050
The arbitrage calculation uses Aurora's "storage spread" methodology:
- 4-hour spread: Average of top 4 hours minus average of bottom 4 hours each day
- Round-trip efficiency: We apply βΞ· (square root) to split losses between charge/discharge
- Cycles per day: Conservative 1.2 default (many assets achieve 1.5-2.0)
- Availability: 98% uptime (2% for maintenance/outages)
Daily Revenue = Duration Γ Spread Γ βEfficiency Γ Cycles Γ MW Size
β οΈ Critical Insights
π΄ The Window Is Now: First-mover advantage is real. Connection points are scarce. MLFs (loss factors) deteriorate as more batteries connect. Environmental approvals take 18-24 months.
π‘ Revenue Stacking Not Included: These numbers are energy arbitrage ONLY. Add FCAS (frequency control), capacity payments, network services, and synthetic PPAs for full revenue stack.
π’ Policy Tailwinds: Capacity Investment Scheme (CIS), Renewable Energy Zones (REZ), and state targets all support storage deployment.
π The Opportunity
Australia needs 40-60 GWh of storage by 2030. Currently has ~3 GWh. Every month of delay is lost revenue. The coal plants WILL close - they're already uneconomic. The only question is: will you capture the arbitrage, or will your competitors?
This tool shows energy arbitrage only. Real projects stack 3-5 revenue streams. The returns you see here are the foundation - not the ceiling.
π Model Methodology & Calculations
1. Revenue Calculation Engine
Daily Revenue = Spread Γ βRTE Γ Cycles Γ MW Γ Hours Γ Availability Γ MLF
Annual Revenue = Daily Revenue Γ 365 Γ Degradation Γ (1 + CPI)^year
- βRTE: Square root splits efficiency losses equally between charge/discharge
- MLF (0.98): Marginal Loss Factor - you lose 2% to transmission at good locations
- Degradation: Year-by-year capacity decline modeled to 80% floor
2. Debt Structure & DSRA
Debt Service Reserve Account (Corrected Implementation):
- Year 1: Fund 6 months of debt service (one-time cash outflow)
- Years 2-9: Maintain reserve (no annual cash flow)
- Year 10: Release reserve back to equity (cash inflow)
- Impact: Previous error treating as annual expense incorrectly reduced IRR by ~2%
3. Terminal Value Approach
Terminal Value = Initial Capex Γ 15% (scrap/recycling value)
NOT Gordon Growth Model (unrealistic for batteries)
Batteries degrade and get recycled, not sold as going concerns. 15% reflects lithium/cobalt recovery value.
4. Monte Carlo Simulation (1000 Iterations)
Correlated Variables with Realistic Ranges:
- Spread volatility: Β±12% (high market uncertainty)
- Efficiency variation: Β±2% (tight technical specs)
- OPEX uncertainty: Β±15% (operational variability)
- Cycles variation: Β±8% (dispatch uncertainty)
- Availability risk: Β±2.5% (forced outage rates)
Correlation Matrix: High spreads β more cycles (Ο=0.5), Low availability β higher OPEX (Ο=0.3)
Output: P10 (~8% IRR) | P50 (~14% IRR) | P90 (~20% IRR)
5. Enterprise Value (DCF Method)
WACC = (E% Γ 14%) + (D% Γ After-Tax Debt Cost) + 1.5% Risk Premium
EV = Ξ£(Unlevered CF / (1+WACC)^t) + Terminal / (1+WACC)^25
Equity Value = EV - Net Debt
14% cost of equity reflects merchant BESS risk, 1.5% premium for uncontracted revenue.
6. Waterfall Cash Priority
- Operating expenses
- Senior debt service
- DSRA funding/release
- Taxes (30% Australian corporate rate)
- Equity distributions (residual)
β οΈ Legally enforced order - equity gets paid last!
7. Risk Covenant Thresholds
| DSCR | β₯ 1.35x | Debt service coverage for lender comfort |
| Leverage | β€ 65% | Maximum for investment grade rating |
| IRR | β₯ 12% | Minimum equity return hurdle rate |
| Payback | β€ 7 years | Maximum for institutional investors |
8. Conservative Assumptions
What We DON'T Include (Upside Potential):
- β No capacity expansion despite market growth
- β No additional grid services beyond 5% FCAS
- β No renewable certificates or carbon credits
- β Single augmentation only (could do multiple)
- β 15% scrap value (could be 20-25%)
- β No perpetual growth assumption
- β High WACC for conservatism
9. Base Case Parameters
Institutional-Grade Defaults:
- Cycles/Day: 1.3
- Degradation: 0.5%/yr
- OPEX: 0.1% of capex
- CPI: 3.1%
- Debt: 65% @ 6%
- FCAS: 5% additional
- MLF: 0.98
- Augmentation: Yr 10 @ 15%
- RTE: 88%
- Availability: 98%
- DSCR Target: 1.35x
- Degradation Floor: 80%
π― Why This Model is Bankable
Every assumption is defensible to: Lenders, Rating Agencies, Equity Committees, and Technical Advisors. The 14% P50 IRR with 65% leverage represents market-standard returns for merchant BESS in Australia. This is institutional-grade project finance modeling.
