Over the next three weeks, I will continue posting a new post daily, or thereabouts, related to how Hydro Tasmania actually earns money, how the National Electricity Market (NEM) shapes its fortunes, and why the numbers in its accounts now matter more than at any time in the past two decades. It also seeks to dismantle the myths that have dominated public debate.
This fifth post explains Inter-Regional Revenues/Residuals. There are 18 Chapters in total. I thank John Lawrence for his assistance in preparing this information, his attention to detail and research over many years as we have worked together to better understand one of the most complex areas that impact our state, economically and functionally.
Chapter 5: Inter-Regional Revenues/Residuals (IRRs) Explained
The Money Hydro Used to Earn, the Money It No Longer Does, and the Mirage of Mainland Price Benefits
For twenty years, Tasmanians have been told a simple story: when Victoria is cheap, we import and save money; when Victoria is expensive, we export and make money. It sounds plausible. It is also wrong – or more precisely, it was only true under a very specific, now‑defunct arrangement.
To understand why these supposed benefits have evaporated, we need to understand the difference between Inter‑Regional Revenues and Inter‑Regional Residues – two concepts that share an acronym (IRRs) but could not be more different in practice. This distinction is worth more than $100 million a year to Hydro Tasmania. And almost no one in public debate understands it.
The Two IRRs: The Distinction That Changes Everything
Inter‑Regional Revenues (IRRevenues)
This is what existed under an unregulated Basslink. These were real cash payments made directly to Hydro (before 1 July 2025) and to APA (since then) whenever:
- Tasmanian and Victorian prices diverged, and
- Basslink moved power between the two regions.
Before 1 July 2025, Hydro received 100% of these IRRevenues. In 2024/25, they were worth over $100 million net. The gross figure was around $180 million before transmission losses and fees. Hydro will not disclose the exact Basslink fee, citing “commercial in confidence”, but the financials imply roughly $67 million a year. Even after that deduction, Hydro still pocketed more than $100 million.
This was a Hydro‑specific windfall – a quirk of Basslink’s merchant design.
When Hydro controlled an unregulated Basslink it had full access to IRRevenues. After paying the Basslink fee the rest was profit. Today it gets nothing.
Inter‑Regional Residues (IRResidues)
This is what exists under regulated interconnectors – including Basslink from July 2026. IRResidues are not paid to Hydro. They are:
- collected by the Australian Energy Market Operator (AEMO)
- placed into a residue pool
- used to offset the regulated revenue owed to the interconnector owner
- with any shortfall recovered from transmission providers (TasNetworks)
- and ultimately from Tasmanian consumers through network charges
When Basslink becomes regulated after 1st July 2026 IRResidues will be paid into an AEMO pool. Hydro will get nothing unless it successfully bids at auction for the residues.
This is the pivot point in Tasmania’s energy story.
How the NEM Works for Tasmania – and Why Price Differences Used to Matter
The NEM is a five‑minute auction. Each region has its own price – the Regional Reference Price (RRP). Basslink links Tasmania and Victoria. When prices differ, Basslink moves power. When Basslink moves power, money moves too.
Under the old merchant model, that money flowed to Hydro. Under the regulated model, it flows into AEMO’s residue pool.
This is the heart of the issue.
Let’s now look how exports worked before 1 July 2025, after that date and again after 1 July 2026. Then do the same for imports
Exports (Tasmania → Victoria): Why High Victorian Prices No Longer Benefit Hydro
Exports occur when Tasmanian prices are lower than Victorian prices.
Before 1 July 2025 — Hydro’s arbitrage era
Example: Tasmanian RRP = $40 Victorian RRP = $60 Basslink exports.
Hydro earned:
- $40/MWh for generation
- plus $20/MWh in IRRevenues
Hydro’s effective revenue was $60/MWh. This was a major profit centre.
After 1 July 2025 – APA takes the arbitrage
APA now controls Basslink. APA captures the IRRevenues. Hydro earns Tasmanian Regional Reference Price (RRP) only.
Same example: Hydro earns $40. APA earns the $20.
From July 2026 – regulated Basslink
The $20 difference becomes an IRResidue. It goes into AEMO’s residue pool. It reduces the regulated payment TasNetworks must make. Hydro receives nothing.
High Victorian prices no longer benefit Hydro. They benefit AEMO’s residue pool. The “export windfall” is now a mirage.
Imports (Victoria → Tasmania): Why Cheap Victorian Prices No Longer Help Hydro
Imports occur when Tasmanian prices are higher than Victorian prices.
Before 1 July 2025 – IRRevenues cushioned Hydro’s exposure
Example: Tasmanian RRP = $60 Victorian RRP = $40 Basslink imports.
Hydro paid AEMO $60 for MI load. Hydro received $20 back via IRRevenues. The IRRs softened Hydro’s contract exposure.
After 1 July 2025 – the cushion disappears
APA receives the IRRevenues. Hydro receives nothing. Hydro pays $60 for MI load with no offset.
From July 2026 – regulated Basslink
The $20 difference becomes an IRResidue. It goes into AEMO’s pool. It reduces the regulated payment transmission providers must make. TasNetworks pays 25%. Victorian transmission companies will pay 75%. Hydro receives nothing.
Cheap Victorian prices no longer benefit Hydro. They benefit AEMO’s residue pool. The “import savings” are a mirage too.
The New Reality: Tasmanian Prices Determine Everything
The new environment is the exact opposite of the old world. The public narrative – that Tasmania benefits from mainland price differences – is now obsolete.
In the soon to be regulated environment:
- Hydro earns Tasmanian RRP only
- Hydro pays Tasmanian RRP only
- Price differences between Victoria and Tasmania no longer create revenue for Hydro
- All arbitrage value flows into AEMO’s residue pool
- Hydro must buy IRResidues at auction if it wants access
- TasNetworks and consumers will help fund any shortfall
Why This Matters for Hydro, for Major Industry, and for the State Budget
Hydro’s financial model has lost:
- its export upside
- its import‑side protection
- its arbitrage revenue
- its privileged access to IRRs
Hydro’s major industrials (MI) contracts, once cushioned by IRRevenues, are now fully exposed to Tasmanian spot prices. Hydro’s profits, once stabilised by arbitrage, are now far more volatile.
This is not a temporary shift. It is a permanent change in the economics of Tasmania’s energy system.
Why this chapter matters
Understanding IRRs – the money Hydro used to earn, the money it no longer does, and the money that now flows into AEMO’s residue pool – is essential to understanding:
- Hydro’s deteriorating financial position
- The fragility of MI contracts
- The disappearance of arbitrage profits
- The risks of Marinus
- The State’s growing fiscal vulnerability
The old world is gone. The new world is harsher, riskier, and far less forgiving. Next, in Chapter 6, we turn to LGCs – the certificates that were supposed to be an asset, but instead delivered $65 million in losses in 2024/25.