The draft ESEM recommendation would double the NEM cap strike to $600/MWh. Batteries would retain revenue earned between $300 and $600/MWh, whilst preserving most of the cap premium and buyer protection on the worst days.

Under ESEM, the Administrator would buy long-dated caps from batteries and other firming assets, then resell shorter-dated products as delivery approaches. This bridges the gap between the contracts needed for asset finance and those buyers typically trade.

The $600 product would sit alongside the existing $300 cap, giving buyers a choice over how much price protection they need and helping sellers better match the contract to their asset.

This is Part 3 of Modo Energy’s ESEM series. Part 1 explains the shaping swap, Part 2a explains how the Regional Reference PPA settles, and Part 2b examines its value and retained asset risk.

Executive summary

• The $600 strike preserves most of the premium. Sellers retain 84–90% of the implied $300 cap premium whilst keeping revenue earned between $300 and $600/MWh.
• The higher strike better matches battery dispatch. Removing settlements between $300 and $600/MWh reduces uncovered payout by 68–86% in the historical backcast.
• Buyers retain most protection on the worst days. The $600 cap reduces worst-day payouts by only 2–4% compared with a $300 cap.
• Battery duration still matters. Four-hour batteries have historically covered 95–98% of the remaining payout, while longer high-price events reduce coverage for shorter-duration assets.

A $600 cap returns the $300–600/MWh band to sellers

Cap sellers receive a fixed premium and pay buyers when prices exceed the strike. Under a $300 cap, a limited-duration battery must decide whether to discharge between $300 and $600/MWh or preserve energy for higher prices. A $600 cap removes those settlements from the contract.