The past half-year has delivered record-low volatility across the NEM. NEM BESS revenues averaged $38.9k/MW/year in Q2 2026, the lowest quarter to date, increasing the importance of revenue strategies beyond merchant optimisation.

Cap contracts offer a way to earn from volatility risk. Since 2022, opening premiums have exceeded liability in most quarters, meaning batteries that sold caps could have added revenue alongside energy revenues.

Q3 and Q4 2026 caps are priced below the levels seen in the same quarters over the past three years. Sellers now receive less premium for taking the same tail risk, making cap defence and dispatch execution more important.

This article explores how cap contract returns differed across the NEM, how batteries are bidding to defend these, and how to position a four-hour battery to optimise cap returns against liability.

Executive summary

• Selling caps could have added $9-49k/MW/year across the four states from 22Q3 to 26Q2, as realised payouts were lower than premiums in most periods.
• NEM BESS revenues averaged $38.9k/MW/year in Q2 2026, the lowest quarter to date, increasing the importance of revenue beyond merchant optimisation.
• Battery bidding is shifting toward cap defence, with capacity offered below the strike rising from 2-22% in February 2025 to 33-53% by June 2026.
• Four-hour batteries are better placed to defend cap positions, capturing 83-93% of above-strike revenue in the backcast, versus 3-36% for the operating shorter-duration fleet.

Cap premiums have exceeded payouts in most periods

Cap contracts have rewarded sellers when opening premiums exceeded the final settle. That was the pattern across most quarters from 22Q3 to 26Q2.

The exceptions show where the risk sits. Settles exceeded premiums in all four states only twice, in Q3 2024 and Q2 2025. Both of these happened around winter, when the NEM sees more volatility in energy prices.