This seventh post provides detail about how Hydro Tasmania’s Power Purchase Agreements (PPAs) impact on their financial performance. There are 18 Chapters in total. 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.
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.
Glossary of acronyms used in this chapter
CIS – Capacity Investment Scheme: Australian Government initiative to provide revenue support/safety net for new renewable energy (wind, solar) and clean dispatchable (battery) projects to support the 82% renewables target by 2030.
CSO – Community Service Obligation: Government mandates for public entities to provide essential services that are not or may not commercially viable.
FCAS – Frequency Control Ancillary Services: Markets that pay generators or batteries to help stabilise system frequency.
LGC – Large‑scale Generation Certificate: A renewable energy certificate created for each MWh of eligible renewable generation.
NEM – National Electricity Market: A collection of five separate regional markets linked by interconnectors.
PPA – Power Purchase Agreement: A contract to buy or sell electricity at an agreed price.
REGO – Renewable Energy Guarantees of Origin: digital certificates in Australia’s Guarantee of Origin scheme to track and verify renewable electricity, proving when, where, and how it was generated.
RET – Renewable Energy Target: Australian government scheme to incentivise 33,000 GWh electricity from renewable sources each year from 2020 to 2030.
RRP – Regional Reference Price: The official price for each NEM region. Tasmanians pay the Tasmanian RRP.
TUOS – Transmission Use of System: The charges paid for using the high‑voltage transmission network – the poles, wires, substations and interconnectors that move electricity long distances from generators to distribution networks or large industrial loads.
WWF – Woolnorth Wind Farms Built by Hydro but now owned 75 per cent by Shenhua Clean Energy and 25 per cent by Hydro. Operates wind farms at Bluff Point, Studland Bay and Musselroe – a total of 308MW of installed capacity.
Chapter 7: PPAs -The Trojan Horse That Reshaped Tasmania’s Energy System
Power Purchase Agreements – PPAs – are the quiet architecture behind every renewable project built in Tasmania over the past decade. They give developers the long‑term revenue certainty needed to secure finance, while giving buyers predictable costs and renewable credentials. But as Tasmania’s experience now shows, not all PPAs are created equal. Some have strengthened Hydro’s portfolio. Others have quietly undermined it. And in the process, PPAs have become the Trojan Horse through which private developers shift risk onto Hydro, and ultimately onto the State.
The story begins with the bundled wind farm contracts at Granville Harbour and Woolnorth Wind Farms (WWF). These were classic early‑generation PPAs: Hydro bought all the energy, all the Large Generation Certificates (LGCs), and paid a fixed price for both. That was certainly the case for Woolnorth and we suspect the same for Granville. On paper, they looked sensible. At the time, LGC prices were often above $80, and a fixed purchase price of around $50 seemed prudent. LGCs were widely assumed to remain valuable, and the government was eager to present Tasmania as a renewable leader. In that environment, locking in a fixed price for certificates looked like a safe bet rather than a risk.
But the two deals were born from very different circumstances.
Granville Harbour was not a commercially initiated deal. It was a government‑directed arrangement designed to help a developer get a project over the line. Hydro emphasises every year that it was a “Community Service Obligation”, but the label functions more as a fig leaf than a description – a way of giving a politically driven sweetheart deal a touch of respectability. Hydro did not seek the contract, did not negotiate from a position of freedom, and did not believe the terms were commercially optimal. It was instructed to sign, and it now carries the financial consequences for a contract it never wanted.
Woolnorth was different again. In 2013, Hydro sold a 75 per cent stake in the wind farm to Shenhua Clean Energy. A long‑term PPA was a necessary precondition for that sale – part of the commercial packaging that made the project bankable for the buyer. This was not a CSO. It was a commercially motivated deal. But it locked Hydro into long‑term certificate exposure all the same.
What went wrong was not the engineering or the wind resource. It was the policy environment. The Renewable Energy Target (RET) target was met early, LGC demand collapsed, and prices fell to around $22. Hydro, locked into buying certificates at $50, was forced to recognise $142 million in onerous contract losses – losses that will continue until 2030 and all indications are will deteriorate further. Worse, the wind output was treated as purchased energy rather than integrated into Hydro’s dispatch strategy. Hydro had to take the energy whether it needed it or not, on a contractual schedule rather than an operational one, meaning it often bought output it could not use profitably.
The result was a painful contradiction: the PPAs enabled strategically important renewable projects, but they became financially disastrous for Hydro. These contracts are the root cause of the LGC losses detailed in Chapter 6.
Electricity Sales Under PPAs: The Missing Half of the Story
Until now, most public discussion has focused on the LGC component of these PPAs. But the electricity component is just as important – and in some cases, even more consequential.
In the case of Woolnorth Wind Farm (WWF), we know the PPA includes both electricity and LGCs. WWF’s financial statements – reported on a calendar‑year basis – show exactly how volatile these arrangements can be. In one year, WWF recorded a profit from the PPA. In the next, it recorded a loss. That swing reflects changes in spot prices, contract terms, and the underlying economics of the deal. Hydro, as the counterparty, wore the opposite side of that volatility. When WWF lost money, Hydro gained – and vice versa. These are not passive contracts. They are active financial instruments with real consequences for both parties.
Granville Harbour is less clear. Public disclosures do not confirm whether the PPA includes electricity sales. Hydro has never clarified the structure, and Granville’s own reporting is limited. It is possible the arrangement mirrors Cattle Hill – LGCs only. But it is also possible that electricity is bundled in, as with WWF. Until Hydro or Granville actually confirm the terms, we cannot be certain. What we can say is that the financial exposure would be materially different depending on the answer.
This uncertainty matters. Electricity‑bundled PPAs behave very differently from LGC‑only contracts. When electricity is included, Hydro is effectively taking on a fixed‑price hedge – committing to buy energy at a contracted rate regardless of what the spot market does. If prices fall, Hydro loses. If prices rise, Hydro gains. In a falling‑price environment, as Tasmania has recently experienced, these contracts can become a drag on earnings.
Aurora’s Cattle Hill PPA: A Different Beast Entirely
Aurora Energy’s PPA with Cattle Hill looks similar on the surface, but it is fundamentally different. Aurora bought only the LGCs, not the energy. It did not take balancing risk, dispatch risk, or volume risk beyond the certificate stream. The result is visible in Aurora’s 2025 Annual Report: an onerous contract provision of just $1.5 million. The contract volume was small, the term was shorter, the price was closer to market, and Aurora likely renegotiated when prices collapsed. Most of its losses were recognised years ago.
The contrast with Hydro is stark. Hydro buys 1.35 million LGCs a year at $50 each until 2030, with no renegotiation path. Aurora bought a fraction of that volume, at a lower price, for a shorter term, with far less exposure. Hydro took on developer‑scale risk. Aurora took on retailer‑scale risk. Only one of them was financially crushed.
The Trojan Horse becomes visible in that comparison.
Hydro’s New Approach: The Midlands Solar Farm
Hydro’s new Midlands Solar Farm offtake marks a turning point. Signed in 2024, it is an energy‑only physical offtake: Hydro takes 100 per cent of the energy output but does not buy the LGCs. This structure is fundamentally different from the wind PPAs of the 2010s. Solar provides daytime generation that allows Hydro to conserve water. There is no certificate exposure. The developer gets bankability without shifting LGC risk onto Hydro. And the contract aligns with Tasmania’s 200 per cent renewable target while hedging drought risk.
It is not risk‑free. If the Tasmanian Regional Reserve Price (RRP) falls below the contract price, Hydro absorbs the loss. With Basslink soon to be regulated, Hydro cannot rely on IRR revenues to cushion exposures. And integrating large‑scale solar into a hydro‑dominated system requires careful management of Frequency Control ancillary Services (FCAS) and dispatch. But the net effect is clear: the Midlands Solar Farm is strategically positive, financially manageable, and a significant improvement over certificate‑heavy PPAs. It is the direction Hydro must continue.
The Circular Logic of PPAs and Marinus
The deeper problem is the circularity that has emerged around PPAs and Marinus. PPAs create contractual “surplus” generation that Hydro must buy. Developers then argue that Tasmania has surplus renewable energy, that Marinus is needed to export it, and that Marinus will unlock further investment. But the “surplus” exists only because Hydro is contractually obliged to buy it.
Marinus then increases Transmission se of Services (TUOS) charges, increases FCAS costs, eliminates inter‑regional revenue, forces Hydro to compete harder in Victoria, and increases Hydro’s contract exposure. Hydro’s financial position weakens. Developers then argue that Hydro needs more PPAs to stabilise revenue. And the cycle repeats.
Inside this loop sits the Trojan Horse: PPAs shift private risk onto Hydro, and Hydro shifts the consequences onto the State.
The Lesson: PPAs Must Serve Tasmania, Not Undermine It
Tasmania’s experience with PPAs reveals a clear trajectory. Certificate‑heavy PPAs are finished. Hydro and Aurora learned the hard way that fixed‑price LGC contracts can become onerous when policy settings change. Energy integration is the future. Midlands Solar shows that PPAs must be designed to integrate renewable output into Hydro’s portfolio, not speculate on certificates.
Renewable Energy Guarantees of Origin (REGOs) will replace LGCs, but they must not become another trap. They should be credibility tools for green aluminium, green hydrogen, industrial customers, and export markets – bundled with energy contracts, not treated as speculative revenue streams.
Portfolio diversification remains essential. Hydro must continue contracting for wind and solar to hedge hydrological risk, especially as Basslink and Marinus expose Tasmania to mainland volatility. But financial discipline is non‑negotiable. Hydro must avoid locking itself into fixed‑price certificate deals that can become onerous. Energy‑only offtakes provide flexibility, strategic alignment, and resilience.
It is also important to recognise that the Commonwealth’s Capacity Investment Scheme (CIS) is reshaping the economics of PPAs. CIS‑backed projects receive revenue underwriting, allowing them to offer lower‑priced, lower‑risk contracts than Hydro can match. This increases competitive pressure on Hydro’s PPA portfolio and further reduces the likelihood that Hydro can recover losses through future market volatility or arbitrage.
Tasmania’s PPA history tells a simple story. Granville Harbour was a government‑directed sweetheart deal dressed up as a CSO. Woolnorth was a commercial precondition for the Shenhua sale. Both were certificate‑heavy and became financially onerous when LGC prices collapsed. Aurora’s Cattle Hill deal was smaller, safer, and now almost extinguished. Hydro’s Midlands Solar Farm offtake marks a strategic pivot: energy‑only, portfolio‑integrated, and aligned with Tasmania’s renewable future.
The lesson is clear. PPAs must be structured for resilience. Certificates matter, but they should be credibility tools, not speculative bets. Hydro’s future profitability – and its contribution to the State – depends on integrating renewables into its portfolio, managing wholesale risk, avoiding certificate traps, and ensuring that PPAs serve Tasmania’s interests rather than undermine them.
PPAs built Tasmania’s renewable fleet. But unless they are designed with discipline, they can also undermine the very institution – Hydro – that has held the State together.