Game-changing moment for energy storage as first virtual storage hedge contract deal done
21 January 2021
Clean energy market innovator Renewable Energy Hub today announced the first transactions of its new ‘Virtual Storage’ electricity swap contract between Hydro Tasmania and two buyers – Macquarie Group and ERM Power.
This innovative financial instrument is for the buying and selling of stored energy. It helps market participants agree upon a set spread between the charge and discharge price for pumped hydro energy storage and battery operators.
Chris Halliwell, Co-Founder and Head of Markets at Renewable Energy Hub, said this innovative hedging contract introduced by Renewable Energy Hub will help firm up renewables and support retailers to hedge spot market prices.
“As the energy market changes, the financial markets are changing with it.” said Halliwell.
“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.”
The 2022 financial year transaction involves Hydro Tasmania selling the rights to the highest priced energy periods of the day ‘discharge’ and buying a fixed MW block of low-priced energy ‘charge’. The charge/discharge legs are the same MWhs, and the transaction price is the agreed price spread between bought and sold legs.
Hydro Tasmania Executive General Manager of Commercial, Caroline Wykamp, said innovative partnerships like this presented a great opportunity to support the NEM transition.
“The benefits of deep storage, currently being progressed as part of the Battery of the Nation initiative, are well understood in the context of providing firming capacity that will be needed as the energy market transitions and variable renewable energy becomes the dominant source of supply.
“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 – it’s a win-win”, she said.
Byron den Hertog, Head of Asian Power, Gas and Emissions at Macquarie said: “This deal draws on our heritage as a provider of bespoke solutions that help our customers manage price risk, and applies it to initiatives that support the energy transition.”
David Guiver, Executive General Manager Trading and Supply at ERM Power said: “The Virtual Storage product will allow ERM Power, now part of Shell, 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."
As additional pumped hydro energy storage and grid-scale battery technology assets become more prevalent in the NEM, the need to effectively trade stored energy becomes essential to strategically capture revenue. Renewable Energy Hub’s Virtual Storage contract will become more utilised and generate increased liquidity in the market as this happens.
These new standardised hedge contracts are part of an advanced suite of data, tools and transactions on the Renewable Energy Hub digital marketplace, with genuine energy and carbon markets innovation to accelerate the renewable energy transition.” said Halliwell."
Virtual Storage is the most recent product developed by Renewable Energy Hub, as part of an Australian Renewable Energy Agency (ARENA) funded project to develop a suite of innovative, standardised hedge contracts to meet the needs of a transitioning energy market. The other contracts – Super Peak, Solar Shape and Inverse Solar, have traded over 1GW since launching last year.