Interesting article on selling 'storage capacity' as an electricty price hedge. Also mentions Genex Power
https://www.copyright link/markets/equity-markets/asx-to-rise-wall-st-hits-record-on-biden-stimulus-hopes-20210120-p56vn3Hydro, Macquarie, Shell in 'game-changer' storage deal
Angela Macdonald-SmithSenior resources writerJan 21, 2021 – 12.00amHydro Tasmania has struck the first-ever deal for the trade of stored energy, introducing a new type of financial contract that is expected to be popular with electricity retailers wanting to handle escalating price risk and should also help spur new pumped hydro projects.
Under the contract, signed with Macquarie Group and Shell, Hydro Tasmania sells the rights to power stored in its system during the highest-priced part of the day and buys energy to charge its plant when prices are low, taking advantage of the swings in daytime prices that have become typical in the electricity market due to weather-dependent renewable energy.
On the other side of the deal, which involves a sizeable 20 megawatts of storage during the 2022 financial year, Macquarie andShell's ERM Powerget virtual access to stored electricity even though they don't own any batteries, protecting them against exposure to spiking wholesale prices.
The emerging ability to trade energy storage should help new pumped hydro projects get off the ground.
This type of hedging contract is expected to be used by both companies that have grid-scale storage and want to make sure they are using them most cost-effectively, and by those that don't but want financial contracts in place that replicate their function in the rapidly transforming energy market.
Hedging is effectively a form of insurance that typically involves offsetting potential losses in investments or price movements in commodity markets – in this case wholesale electricity – by entering into a financial contract in a similar asset.
"There's nothing like this in the current market design but there's a dramatic need for it," said Chris Halliwell at Renewable Energy Hub, the venture that brokered the deal. The hub also offers a trading platform for the so-called "virtual storage" contract and other emerging derivatives contracts increasingly needed in today's energy market.
Large-scale energy storage, including both grid-scale batteries and pumped hydro plants, has become a priority technology for players throughout the electricity sector dealing with surging wind and solar power generation, which often sends wholesale prices into negative territory but which also helps drive spikes to extreme levels.
The "free" surplus daytime power is driving investment in large-scale batteries around the National Electricity Market as companies seek to save it for when prices are higher and provide services tokeep the power grid stable as coal power stations close down.
While the Snowy 2.0 storage project is being developed, several other pumped hydro projects have struck commercial difficulties, although Genex Power is edging towards financial close of its Kidston project in north Queensland thanks toa 30-year offtake deal with EnergyAustralia.
But now developers will be able to offer standardised storage contracts to smaller buyers who want access to part of their capacity, rather than be reliant on a limited pool of major "gentailers" for one large contract, Mr Halliwell toldThe Australian Financial Review.
Under the Hydro Tasmania deal for 2021-22, the price is based on the difference in the lowest and highest pricing periods of the day, as agreed between the parties, with the total value running into the millions of dollars.
Hydro Tasmania's executive general manager of commercial, Caroline Wykamp, said the contract provides a battery developer with certainty over the price difference between those highest and lowest price periods that underpins the economics of a storage system.
She said such contracts would help get projects such asHydro Tasmania's Battery of the Nation long-duration storage projectoff the ground.
"The virtual storage hedge contract demonstrates the value of such trades to the financial market and that further liquidity in such trades can support investment needed to develop pumped hydro and other storage technologies that will ultimately support Australia's renewable energy future," Ms Wykamp said.
For business power retailer ERM, the contract will help customers manage the risks around the increasingly intermittent electricity market, said David Guiver, executive general manager trading and supply. He said it would also support the further integration of renewables into the market.
The development of the new contract is part of a project supported by the Australian Renewable Energy Agency for Renewable Energy Hub to develop a suite of contracts to meet the needs of companies dealing with the changing electricity market, including exposure to wholesale power prices. Earlier innovations have includeda "super peak" solar contract that was entered into last year between Snowy Hydroand a large energy user.
The ARENA funding also supports the hosting of the contracts on a digital marketplace that is intended to be accessible to smaller players who don't have the financial clout to be able to trade derivatives contracts on the Australian Securities Exchange but still need to manage the same market price risks as larger counterparts.
"This is the market innovating and supporting with their own private initiatives to function most efficiently to send investment signals for the market to function properly," Mr Halliwell said.
He contrasted this industry-led development to manage the changing power system with governments' constant intervention in the sector, something that has become a key concern for market participants.
"This is more supported by industry than increasing interventions and continuous redesigns of regulatory positions to fill other political objectives."
