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Hydro Hedge

Hydro Tasmania have signed its first deal for the energy stored in its system.

The financial contract between Macquarie Group, Shell and Hydro Tasmania sells the rights to the energy stored in Hydro Tasmania’s network of water storage. Hydro Tasmania sell the right to the energy during the parts of the day when prices are high and buy energy when prices are low.

This product allows retailers and large users to manage their price risk that are increasing as the market changes with the increased penetration of intermittent generation. The deal provides 20MW of storage to Macquarie and Shell through virtual access to the stored energy.

As a risk or insurance strategy this product allows counterparties the ability to use a financial contract to replicate a battery and for battery owners the ability to hedge against their grid connected energy storage facilities.

Large-scale energy storage is currently the only option for intermittent generation such as solar and wind generators to store their excess energy when spot prices are not favorable.

This has led to an increased interest in battery storage across the National Electricity Market (NEM), with the Australian Energy Market Operator (AEMO) estimating 7,000MW of storage in the planning. The advantage of physical energy storage is that the energy can be stored when prices are low while exporting to the grid at the point when prices are high. The added benefit of physical storage is the ability for batteries to provide services to stabilise the grid when required.

As part of the planned 7,000MW of storage projects it includes the much published Snowy 2.0 which is moving ahead and the Genex storage project in North Queensland, but many other projects are not reaching financial close due to the increasing cost of pump storage hydro.

This is leading to retailers, large consumers and developers looking at other options including battery storage that is quick to build and financial products as outlined above.