Offtake contracts provide battery owners the ability to lock in value from their assets over a longer timeframe than that available from the market. The owner receives some level of guaranteed revenue in exchange for some of the upside available from the market. This provides a more stable flow of revenues, helping to manage risk and get debt financing.

Firstly - what is an offtake contract? This is an agreement whereby one party (the “offtaker”) agrees to purchase some or all of a generator’s output ahead of time. These contracts can physically hand over operation to the offtaker, but can also be financially settled based on final market positions.

In this explainer, we provide detail on:

• The various offtake contracts currently available for batteries in the NEM;
• Trends across offtakes in contract length and contract size;
• Who the main offtake providers are historically and in today’s market;
• How much of future BESS buildout is dependent upon offtake contracts.

​For more on BESS offtakes, check out our recent articles on the offtake landscape in ERCOT and how to price a BESS tolling agreement.

What offtake structures are available for BESS in the NEM?

Structuring an offtake agreement depends heavily on the asset owner’s risk appetite and financing needs. However it also depends on what is available in the market. There are four common offtake contracts currently available to batteries in the NEM.

• Physical toll - The owner “hands over the keys” for the asset to the offtaker, who assumes full responsibility for physical plant operations, market registration and financial flows. In return, the owner receives a fixed payment.
• Virtual toll - A financial derivative-based contract in which the owner retains operational control of the asset. The offtaker nominates charge and discharge positions and receives the energy arbitrage value this would provide. In return, the owner receives a fixed payment.
• Firmed PPA - A financial derivative-based contract delivered in combination with a renewable generation asset. The battery helps provide a firmed generation profile, with the overall portfolio being paid based on each MWh of energy delivered. The battery helps the renewable project achieve a higher price than otherwise available.
• Revenue share/swap - A financial derivative-based contract in which the owner receives a fixed minimum payment in return for a share of the market upside from the asset. The owner retains full operational control of the asset.

Ultimately, these contracts reduce revenue volatility for the asset owner compared to a pure merchant strategy. However, they do so in different ways, with different returns for both owner and offtaker in different revenue scenarios.

Most offtake contracts for batteries in the NEM have been physical tolls. However, this is changing as asset owners develop in sophistication and risk appetite.

Alternative offtake contracts are on the rise in the NEM

Until 2023, physical tolls made up all battery offtake contracts in the NEM. That year the first alternative contract was announced: Tesla’s innovative revenue share agreement for Bouldercombe. Since then, these alternative, financial-derivative based contracts have grown in the market.

47% of offtake contracts in the market (across both live and pipeline projects) are now either a virtual toll, revenue share/swap, or a firmed PPA. This increases above 50% if we include announced but undisclosed virtual toll and revenue swap agreements.

Current trends in offtakes for BESS in the NEM

While the value of offtake contracts are not publicly disclosed, other key elements are, including contract length and size. Since 2023, all publicly announced BESS offtake contracts have been ten years or longer in duration. This trend exists across all offtake contract types, indicating this is driven by market need. Long-term offtake contracts are crucial to securing lower-cost debt with longer tenors.