Game-changing “virtual storage” deal struck between Macquarie, Shell and Hydro Tas

An innovative financial instrument for the buying and selling of stored renewable energy has had its debut in Australia via a “virtual storage” electricity swap contract between Hydro Tasmania and two buyers – Macquarie Group and Shell-owned ERM Power.

The “game-changing” moment was announced on Wednesday by Renewable Energy Hub, the Melbourne-based company that has been working with the backing of the Australian Renewable Energy Agency to develop a suite of innovative, standardised, hedge contracts to meet the needs of a transitioning energy market.

As Renewable Energy Hub explains, the development of a virtual tool to effectively trade stored energy had become increasingly essential to strategically capture revenue, particularly as grid-scale “big batteries” and pumped hydro energy storage projects become more prevalent in the NEM.

And while this particular deal was done the old-fashioned way, ‘virtual storage’ contracts will soon (later this year) be able to be transacted digitally, as part of the advanced suite of data, tools, and analytics on Renewable Energy Hub’s OTC (“over-the-counter”) platform.

“(It) 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,” said Renewable Energy Hub co-founder and head of markets, Chris Halliwell, in a statement.

“It’s an energy contract customised to suit the way in which batteries perform, and therefore, is designed around a battery’s behaviour,” he added in comments to RenewEconomy on Thursday. “The exciting bit beyond that – the digitisation, the access to data – is a very big part of how these work.”

Renewable Energy Hub says the the 2022 financial year transaction between Hydro Tasmania, Shell and Macquarie involved selling the rights to the highest priced energy periods of the day ‘discharge’ and buying a fixed MW block of low-priced energy ‘charge’.

And Halliwell says that having an entity “so significant” as Macquarie Group take part in the deal underscores the importance of standardised virtual hedge contracts contracts in a rapidly evolving market. “This is private enterprise setting an example of the types of solutions the market needs,” he 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,” said Byron den Hertog, the head of Asian power, gas and emissions at Macquarie.

ERM Power executive general manager of trading and supply, David Guiver, says the virtual storage product will allow it to help 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,” Guiver said.

On the other side of the equation, Hydro Tasmania sees the new product as a crucial support to its plans to transform Australia’s island state into the “battery of the nation,” as it aims for 200 per cent renewables by 2040.

“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,” said Hydro Tas executive general manager of commercial, Caroline Wykamp.

“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.

For Renewable Energy Hub, the Virtual Energy offering joins its other hedge contract products, including the Super Peak, Solar Shape and Inverse Solar, which have traded over 1GW since launching last year.

As RenewEconomy has reported, a “super-peak swap” totalling 25MW in 2021 and 2022 with the government-owned utility Snowy Hydro was announced in April of last year, and hailed as a landmark deal to open up the market for renewable energy supporting technologies.