Green finance innovation caters for ‘Virtual Storage’ market

In what Renewable Energy Hub is calling a ‘Virtual Storage’ first, the Australian Renewable Energy Agency (ARENA) funded clean energy marketplace middle-man has announced its first virtual storage hedge contract, a deal done between Hydro Tasmania and the buyers, Macquarie Group and ERM Power. 

The contract is demonstrative of how green finance is developing new and innovative instruments for the energy marketplace. The idea is to allow participants to agree on a set charge and discharge price for stored pumped hydro energy spread across agreed time. 

The deal, which will take place in FY2022, sees Hydro Tasmania selling the rights to the highest priced periods ‘discharge’ and buying a fixed MW block of low-priced energy ‘charge’. 

Hydro Tasmania Executive General Manager of Commercial, Caroline Wykamp, said innovative partnerships like this presented a great opportunity to support the NEM transition.

Chris Halliwell, Co-Founder and Head of Markets at Renewable Energy Hub, said this contractural capability will help firm up renewables and support retailers to hedge spot market prices.“As the energy market changes,” said Halliwell, “the financial markets are changing with it. The Virtual Storage contract enables merchant storage operators to de-risk their energy arbitrage revenue, to move beyond complete exposure to spot prices and hedge their risk and capture more attractive revenue options in the forward market.”

Of course, Hydro Tasmania is extremely confident in its storage, so much so that it is strongly pushing its ambitious Battery of the Nation initiative as the Island State seeks to provide firming capacity across the NEM. 

Toward this end, Wykamp said the Virtual Storage hedge contract represents just how seriously the financial market is taking Hydro Tasmania’s stored-up clout. Moreover, Wykamp believes “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 – it’s a win-win”.

As financial risk has been taken out of the energy transition it has been revealed to be the major weight which had kept it back. 

David Guiver of ERM Power, one of the buyers, said the Virtual Storage product allows ERM (now a Shell company) “to help our customers manage the risk around an increasingly intermittent market. It supports integration of renewables into the NEM and demonstrates our commitment to decarbonising the Australian power sector.”

Charged market 

A recent report from Wood Mackenzie predicted a 30% drop in front-of-the-meter battery costs in the Asia Pacific region. Tie that in with Cornwall Insight Australia’s (CIAs) estimate that Australia’s current battery energy storage pipeline sits at around 7 GW, and we realise that the energy storage market long predicted has come upon us rather suddenly. 

In fact, CIA’s quite startling estimate has shown to be almost conservative in light of the first fortnight of 2021. Along with a slew of project announcements to round out 2020, the first weeks of 2020 have seen the release of charged announcements including Origin Energy’s plans for a 700 MW megabattey in NSW’s Hunter region as well as Neoen’s 500 MW battery planned west of Sydney. Not to forget Australia’s largest power producer, AGL, which remains on track to add at least 850 MW of new large-scale battery storage to its portfolio by 2024.

Add in the fact that the Battery of the Nation initiative has strong federal support, and the stored energy market has well and truly arrived. Hence why Renewable Energy Hub is instituting its Virtual Storage contract to encourage increased liquidity across the rapidly growing market.