How Dynamic Connection Agreements Impact Battery Returns

As Australia’s grid expands and evolves, developers and owners of distribution-connected batteries face a new choice. They can accept non-firm network access through dynamic connection agreements or tariff arrangements, which reduce their network costs but limit market revenue. Or they can pay more for unconstrained network access that guarantees network capacity but ties up capital.

Dynamic connection agreements (DCAs) represent a new option for how batteries and solar can connect to constrained distribution networks. Under these agreements, network service providers can dynamically adjust the import and export limits of connected assets based on real-time network conditions. For battery operators, this offers:

• Reduced connection costs and faster project timelines
• Access to otherwise constrained parts of the network
• Potential to connect larger capacity than traditional firm connections would allow, supporting multi-megawatt deployments on the distribution network

However, these benefits come with a critical question: how much revenue are you leaving on the table when your battery can’t fully charge during negative prices or discharge during price spikes due to network constraints?

In a recent study, OptiGrid looked into BESS revenue projections under DCAs. It revealed surprising insights in a trade-off that showed the relationship between network constraints and battery revenue has many nuances. This comprehensive simulation study which modelled battery operations across four substations over a full financial year highlighted revenue losses can be both location-specific and non-linear.

Moderate Constraints have Minimal Impacts

OptiGrid simulated the operation of megawatt scale batteries at four substations across the distribution network, testing various constraint scenarios over the FY23-24 period. We used our proprietary backtesting framework, which mirrors real operational conditions by making decisions using only information available at each point in time.

The modelling revealed battery revenue doesn’t decline linearly with tighter constraints. Instead, it follows a logarithmic curve, meaning there’s often a sweet spot where accepting moderate constraints has minimal revenue impact. This suggests that moderate constraints have a small impact on revenue – where 20-30% in network constraints often costs less than 5-10% of potential revenue.

The Surprising Impact of Import Constraints

One of the most counterintuitive findings we found related to import limitations. While it’s obvious that export constraints limit discharge revenue, our simulations revealed that import constraints can be equally damaging through a cascading effect from:

1. Direct impact: A reduced ability to charge during negative price periods.
2. FCAS impact: A limited capacity to offer FCAS Lower services.
3. Hidden impact: An inability to charge before high-price events, leaving the battery with insufficient stored energy when prices spike.

We observed multiple instances where batteries missed out on $10,000+/MWh price events – not because of export constraints, but because import limitations from earlier in the day prevented adequate charging. Below is an example of a BESS being unable to discharge into a high wholesale price event (scenario 1) due to its inability to charge before the event happened on the 8 December 2023.

Location, Location, Location

The revenue impact of network constraints varied significantly between substations. Some sites could accommodate large amounts of battery capacity before constraints impacted revenue, while others could accommodate less. The load profiles also impacted results, with differences observed between residential and industrial areas.

These variations highlight a critical insight: generic assumptions about DCAs don’t work. Each connection point requires site-specific analysis considering local load profiles, existing generation, and network topology.

The Value of Foresight

One of the most actionable findings for both network operators and battery owners is the value of constraint forecasting. Our simulations compared two scenarios:

• “Just-in-time” notification of constraints at the start of each 5-minute interval
• 24-hour advance notice of upcoming constraints

At higher constraint levels, batteries with 24-hour foresight captured 15-25% more revenue than those operating without visibility. This suggests that investing in constraint forecasting systems could significantly offset the revenue impact of DCAs.

Price forecasting is critical too. We modelled the performance of batteries under three different forecasts: Perfect foresight, AEMO’s pre-dispatch, and OptiGrid’s price forecasts.

It showed better price forecasts materially increased battery revenue in all situations, whether constrained or unconstrained.

The Path Forward

OptiGrid’s study makes clear that DCAs aren’t simply a compromise, they’re a sophisticated tool that can benefit all stakeholders when it is used effectively. The key lies in:

1. Site-specific analysis: Generic rules do not capture the diversity of outcomes across different network locations.
2. Investment in forecasting: Greater visibility of constraints and price forecasting dramatically improves revenue outcomes under DCAs.
3. Sophisticated optimisation: Advanced control systems that can adapt to dynamic constraints while maximising revenue in energy markets in real-time.
4. Transparent data sharing: Networks and operators need to work together to understand and minimise revenue impacts.

As the grid continues to transform in a dynamic marketplace, DCAs will become more ubiquitous for network connections. Battery operators who understand these dynamics and invest in the right operational capabilities will be best positioned to thrive in this new paradigm.

If you’re considering a DCA for your battery project, please talk to us. Our simulation platform models your specific situation to quantify how network constraints may impact your revenue, while our trading optimisation platform, OptiBidder, helps you make the most of your battery investments.