A new ‘super-peak’ contract that is designed to cover demand during the high-priced morning and evening shoulder periods, when solar output is low, has been hailed a new era for renewables, opening up multiple opportunities for on-demand energy resources. The growth in these new kinds of financial products is expected to provide new incentives for market players to seek out assets – such as batteries, hydropower, and other balancing resources – that can firm up intermittent renewables.
The first deal of this kind has been inked by Renewable Energy Hub, which is connecting buyers and renewable energy projects in the wholesale market, and government-owned utility Snowy Hydro. The transaction involves Snowy Hydro selling 25 MW in 2021 and 2022 only in the high-demand hours of the morning, afternoon and evening periods. The first trade of the super peak contract will enable the utility to use its existing hydro assets, providing the on-demand renewable energy.
According to Renewable Energy Hub’s Head of Markets Chris Halliwell, these ‘super peak’ periods are becoming more pronounced in the National Electricity Market (NEM) as the rapidly growing solar fleet suppresses net demand and prices during the middle of the day, only for demand and prices to ramp up rapidly as the Sun sets.
“This new hedge contract enables market participants to manage the risk of very high prices during these periods,” said Halliwell. “Importantly, it also gives renewable energy generators like Snowy Hydro access to new markets, and encourages new forms of supply into the grid to improve energy security.”
For Snowy Hydro, the demand for such new energy deals comes as no surprise. Cameron Fisher, General Manager of Trading at Snowy Hydro said as the energy market transitions to more renewables, there is a growing need for new hedging instruments backed by on-demand energy resources such as hydro and batteries.
“The super peak products are a natural fit for Snowy Hydro and complement the existing firming products we are offering to both the wholesale and large customer markets,” Fisher said.
The deal comes after Renewable Energy Hub secured backing from the Australian Renewable Energy Agency (ARENA) in January to build a new digital marketplace and innovative hedging contracts for clean energy technologies, such as the super-peak contract. The new firming market platform will for the first time support clean energy projects, large energy users and wholesale energy market participants to access innovative technology-specific contracts.
Common financial products that help Australian energy buyers and sellers manage their risk and provide a stable price to customers energy include derivatives such as forwards, futures and swaps, which are based on predicted prices at an agreed time in the future; and options such as caps — contracts that result in payment to the buyer when the pool price of electricity exceeds an agreed price. The market for financial products that manage the risk in the Australian energy system is estimated to be worth $26 billion a year, almost $10 billion more than the wholesale electricity market itself.
The super peak contract, ideal for pumped hydro, batteries and other forms of flexible peaking generation, will be one of a number of new standardized contract types that will be offered through Renewable Energy Hub’s platform, which will aim to fill in the gap left by the wholesale market that has not adapted to suit Australia’s renewables sector. The digital marketplace supporting these new solutions will provide data and tools to facilitate price discovery, support the evaluation of power purchase agreements and contracting options, recognizing the unique requirements of contracting and procuring variable renewable energy.
“This new marketplace will facilitate trade in contracts that reflect the ‘profile’ of renewable generation, filling a gap in risk solutions and creating price efficiency to unlock more clean energy technology,” said Halliwell. “Importantly, this new marketplace with contracts such as the super peak will ‘firm up’ Australia’s rapidly-growing fleet of renewables by enabling generators, retailers and large energy users managing their PPAs to trade fixed volumes of clean energy out into the future.”