Battery owners are increasingly using cap contracts to reduce exposure to merchant revenue volatility and improve income certainty. Selling caps introduces liability during high-price events, but historically, this has been more than offset by the premium. The value of selling caps depends on the frequency and concentration of high-price events, and how effectively batteries respond. For operators, the key question is how much of that exposure can be physically defended.

This analysis examines historical cap outcomes across the NEM, focusing on when liability arises, how it varies by region, and how effectively the fleet defends high-price intervals. It also tests how different levels of cap exposure impact returns and revenue volatility.

Executive summary

• Cap risk is concentrated in a small number of winter events, with 65–85% of quarterly exposure driven by just a few days
• Cap premiums have exceeded realised liability in most quarters, supporting positive returns from selling caps
• Battery defendability is the key constraint, with the ~2-hour fleet covering 16–36% of its capacity, with higher levels achieved through optimisation
• Selling 60–75% of a four-hour battery’s capacity has historically provided the best balance between return and risk

Batteries are most exposed to cap liability in winter

Prices above $300/MWh concentrate in winter, when lower renewable output coincides with higher demand. This drives tighter supply and more frequent price spikes over a short period. Cap liability is therefore seasonal, and operators must reflect this in their cap exposure.

Victoria has the fewest high-price intervals. It has a large generation fleet relative to demand, with much of this supplied by low-cost brown coal generation. This limits both cap revenue and risk, resulting in a more stable but lower-value cap profile.