Financial products

To incentivise investment in Australia’s energy markets, investors need to feel secure about their returns.

At ASL, we specialise in developing financial products to reduce price uncertainty for investors. Our innovative financial solutions are designed to meet the unique needs of each energy investment scheme, adapting to various financial, legislative, and social requirements.

We have developed a unique financial product for the New South Wales Electricity Infrastructure Roadmap called a Long-Term Energy Service Agreement (LTESA). You can learn more about this product below.

Long-Term Energy Services Agreements (LTESAs) for
the New South Wales Roadmap

ASL has developed the Long-Term Energy Service Agreements (LTESAs) to support the New South Wales Government’s Electricity Infrastructure Roadmap.

The LTESAs offers generation, storage and firming projects the right to access minimum cash flows for periods within a long contract term, reducing price uncertainty for investors, bringing forward investment in new sources of renewable energy projects and supporting more affordable energy for consumers.

Incentivises investment in NSW by providing a protection against low wholesale electricity prices

Delivers better value and protections for consumers and host communities

Retains market upside for projects, enhancing competition

Achieves an efficient risk allocation between projects and NSW electricity consumers

WHAT IS AN LTESA?

Long-Term Energy Service Agreements (LTESA) are innovative options contracts which improves certainty for investors and value to energy consumers.

LTESAs offer generation, storage and firming projects the right to access minimum cash flows for periods within a long contract term, reducing price uncertainty for investors and subsequently bringing forward investment in new sources of renewable generation and storage, supporting more affordable energy for consumers.

HOW LTESAS WORK

LTESAs reduce investor risk from unexpectedly low wholesale electricity prices while maintaining their exposure to upside where electricity prices are higher

The LTESA achieves this by providing project operators with a series of options to access cash flows for distinct periods, over a long contract term. These cash flows are called a “strike price”, which projects compete on through our tender process. Unlike traditional Contracts for Difference, LTESAs provide projects with flexibility to utilise power purchase agreements and wholesale contract markets to opportunistically hedge their electricity price risk. The additional security of the LTESA insurance may also increase the range of counterparties with whom suppliers are willing to trade on the wholesale contracts market. This reduces the likelihood that projects exercise their LTESA options.

The LTESA in action

Traditional incentive schemes for electricity generations have often utilised a Contract for Difference (CFD) model, where the project is reimbursed for the variation between market price and an agreed level. Under the LTESA, consumers will only subsidise a project when prices are already low and due to increases in supply of cheaper firmed renewable energy. Under a contract for difference, consumers typically compensate project proponents more frequently and at higher rates.

Contract for Difference

Suppose a CFD is struck at a levelised cost of energy of $100 per MWh. When the price of electricity in the wholesale market falls to $50 per MWh, consumers pay the difference - $50 – to support the infrastructure owner. This charge is additional to the ordinary rate the consumer pays their retailer for electricity, meaning the consumer continues to pay $100 per MWh, when market prices are at $50.

Long-Term Energy Service Agreement

Suppose now that with the same levelised cost of energy of $100 per MWh, a LTESA has been agreed with a strike price of $50 per MWh. When the price of electricity in the wholesale market falls to $50 per MWh consumers have no cost, whilst still benefiting from lower wholesale electricity prices due to increases in the supply of firmed renewables.

The LTESA provides choice and greater flexibility for projects to maximise revenues and manage their own price risk. Our feedback indicates that this freedom to operate profitably with less need for direct subsidy is highly valued by the market. This sentiment has been reflected in robust participation rates for our early tenders.

Crucially, the competitive tender process ensures that the LTESA is bid down to a more efficient strike price than is typically achieved through a CFD model, and can even be bid down to zero in situations where no incentives are necessary.

Learn more about our LTESA products