Over the next three weeks, I will be posting a new post daily, or thereabouts, related to how Hydro Tasmania actually earns money, how the National Electricity Market 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 first post will include an executive summary, preface, table of contents and glossary of terms including regularly used abbreviations and acronyms to assist the reader in addition to Chapter 1 – Why Tasmania Needs an Energy Explainer. 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.
Whilst a little repetitive, this is important to build on the information provided in the matters covered, as we progress through this Explainer and in the call for action to ensure the future of this critical Tasmanian asset – Hydro Tasmania. We hope this work will make a significant to contribution to greater understanding of how the National Electricity Market operates, how Hydro Tasmania actually makes money for the State and the serious financial risks ahead for not only Hydro Tasmania but for the State of Tasmania.
Executive Summary
Hydro Tasmania has been the State’s most important financial and strategic asset for more than a century. It powered industrialisation, stabilised the Budget, and gave Tasmania a rare degree of economic independence. But the financial position revealed in the 2024/25 accounts shows a business under growing pressure – and a public narrative that no longer reflects the underlying reality.
This Explainer has been written with support from John Lawrence and draws on information publicly available on the Australian Energy Market Operator, the Office of the Tasmanian Economic Regulator, Annual Financial reports of the State-owned Energy Companies and other relevant public documents. The Explainer seeks to set out, in plain English, how Hydro actually earns money, how the National Electricity Market shapes its fortunes, and why the numbers in its accounts now matter more than at any time in the past two decades. It dismantles the myths that have dominated public debate – including the belief that Tasmania earns Victorian prices, benefits from negative Victorian prices, or can rely on arbitrage to fund its future. It explains the mechanics behind IRRs, LGCs, PPAs, REGOs, FCAS, and the Tasmanian price, and shows how each contributes to Hydro’s revenue, risk, and long‑term sustainability.
The reconstructed financials reveal a clear pattern: underlying profit has turned negative, liabilities have grown, cash flow has tightened, and Hydro’s liquidity now depends on borrowing rather than earnings. The business is more leveraged, more exposed to drought and market volatility, and more dependent on settlement flows than most Tasmanians realise.
The Explainer also examines the governance environment – the WoSBC redactions, the opaque annual report, the refusal to disclose basic financial information, and the public repetition of myths about the NEM – and shows how these patterns have eroded transparency at a time when clarity is most needed.
The final chapters look forward. They outline the fiscal stakes for Tasmania, the reforms required to restore transparency and resilience, and the choices that will determine Hydro’s next century. The message is simple: Hydro remains one of Tasmania’s greatest assets, but its future – and the State’s – depends on honesty, clarity, and reform.
Preface
Tasmania’s energy debate has become crowded with confident claims, political slogans, and convenient myths. What has been missing is clarity – a plain‑English explanation of how Hydro Tasmania actually works, how the National Electricity Market shapes our fortunes, and why the numbers in Hydro’s accounts now matter more than at any point in the past two decades. This Explainer was written to fill that gap.
The early chapters lay the groundwork. Chapters 1 to 4 set out why an Explainer is needed at all, introduce the basics of electricity and the NEM, and explain Hydro’s unique role as the institution that quietly holds the State together. These chapters give Tasmanians the context they are rarely provided, but absolutely need before any honest discussion about Basslink, Marinus, or the State’s financial future.
Chapters 5 to 9 then break the system open. They explain the components that shape Hydro’s revenue and risk – IRRs, LGCs, PPAs, REGOs, FCAS, and the truth about Tasmanian and Victorian prices. These are the moving parts that determine whether Hydro thrives, struggles, or quietly absorbs risks that eventually fall back on the State.
With that foundation in place, chapters 10 to 14 walk through Hydro’s financials: underlying profit, the balance sheet, cash flow, and the combined picture they reveal. This is where the structural pressures become visible, and where the gap between public narrative and financial reality becomes impossible to ignore.
Chapter 15 steps back to examine the myths and misconceptions that dominate public discussion – the stories that have shaped Tasmania’s energy debate more than the facts ever have.
Finally, chapters 16 to 18 look forward. They outline the fiscal stakes for Tasmania, the reforms needed to restore transparency and resilience, and the choices that will determine Hydro’s next century.
This Explainer is not an argument against Hydro. It is an argument for clarity – because only with clarity can Tasmania make decisions equal to the scale of what is at risk.
Table of Contents: Hydro Tasmania Explainer
Chapter 1: Why Tasmania Needs an Energy Explainer. A century‑old pillar of Tasmania’s prosperity is weakening, and the public narrative no longer matches the numbers.
Chapter 2: Electricity and the NEM – The Basics Tasmanians Are Never Told. What every Tasmanian needs to understand before we can have an honest conversation about Hydro, Basslink, Marinus, or the State’s financial future.
Chapter 3: Hydro Tasmania – The Institution That Holds the State Together. Why Hydro is not just another government business — and why its future now shapes Tasmania’s future.
Chapter 4: How the NEM Really Works for Tasmania. Hydro’s role, money flows, and the changing economics of Basslink.
Chapter 5: IRRs – The Disappearing Windfall. The revenue source that saved Hydro in 2024/25 vanishes entirely after June 2025.
Chapter 6: LGCs – The $142 Million Problem Hidden in Plain Sight. How Hydro’s long‑term renewable contracts turned into a loss — and why the losses will continue until 2030.
Chapter 7: PPAs – The Trojan Horse That Reshaped Tasmania’s Energy System. How certificate‑heavy wind contracts became a financial trap, how developers shifted risk onto Hydro, and why the next generation of PPAs must avoid repeating the same mistakes.
Chapter 8: REGOs – The New Certificate Scheme, and the Physical Reality That Limits Their Worth. Why REGOs matter for Tasmania’s industrial future — and why they risk becoming ACCU‑style greenwashing unless governed tightly.
Chapter 9: FCAS – Useful, Modest, and Now Mostly Contractual. Hydro’s fast machines once gave it an edge in FCAS. Basslink’s regulatory shift has turned that edge into a small, predictable contract payment, and Marinus will erode it further.
Chapter 10: Underlying Profit – What It Is, What It Isn’t, and Why It Matters. The operating result that reveals Hydro’s true financial performance – and why it turned negative.
Chapter 11: The Balance Sheet – What Hydro Really Owns and Owes. Revaluations inflate the asset side while real liabilities and exposures quietly accumulate.
Chapter 12: Cash Flow – The Final Test of Hydro’s Financial Strength. Hydro’s liquidity now depends on borrowing, not earnings – a warning sign hidden in plain sight.
Chapter 13: What the Numbers Reveal – Hydro’s Position in Full. When profit, balance sheet, and cash flow are read together, the structural pressures become undeniable.
Chapter 14: Myths, Misconceptions, and Convenient Narratives. The recurring claims that distort Tasmania’s energy debate – and the facts that dismantle them.
Chapter 15: Governance, Secrecy, and the WoSBC. A pattern of opacity has taken hold, raising serious questions about oversight and decision‑making.
Chapter 16: The Fiscal Stakes for Tasmania. Hydro’s weakening finances now threaten the State’s already fragile budget position.
Chapter 17: The Path Forward. A practical, transparent roadmap for restoring confidence in Hydro and protecting Tasmania’s future.
Chapter 18: Conclusion – A Century of Hydro, and the Next One. Hydro remains one of Tasmania’s greatest assets – but its next century depends on honesty, clarity, and reform.
Glossary of Acronyms (with brief explanations)
AEMO – Australian Energy Market Operator Runs the NEM, dispatches generators, manages system security, and publishes key planning documents.
AER – Australian Energy Regulator Regulates transmission networks and enforces compliance with NEM rules.
FCAS – Frequency Control Ancillary Services Markets that pay generators or batteries to help stabilise system frequency.
FID – Final Investment Decision The formal government decision to proceed with a major project such as Marinus Link.
GWh – Gigawatt‑hour A measure of energy. One GWh equals one million kilowatt‑hours.
IRR / IRRs – Inter‑Regional Revenues / Inter‑Regional Residues The financial mechanism that captures price differences between NEM regions. Historically a major windfall for Hydro.
ISP – Integrated System Plan AEMO’s long‑term blueprint for the national grid. Not a revenue forecast.
LGC – Large‑scale Generation Certificate A renewable energy certificate created for each MWh of eligible renewable generation.
MI – Major Industrials There are four – Bell Bay Aluminium, Temco, Nyrstar and Norske Skog who consume 55 per cent of the State’s electricity via contracts with Hydro.
ML – Marinus Link The proposed second interconnector between Tasmania and Victoria.
MW – Megawatt A measure of power (capacity). One MW equals one million watts.
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.
RRP – Regional Reference Price The official price for each NEM region. Tasmanians pay the Tasmanian RRP.
TRET – Tasmanian Renewable Energy Target Tasmania’s renewable energy policy framework.
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.
WoSBC – Whole‑of‑State Business Case The Tasmanian Government’s business case for Marinus Link.
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 1 – Why Tasmania Needs an Energy Explainer
The stakes are higher than anyone in government is willing to admit.
For most of the past century, Hydro Tasmania has been the quiet giant holding the state together. When budgets were tight, Hydro delivered. When other revenues faltered, Hydro filled the gap. It was the fiscal anchor that allowed Tasmania to fund services, build infrastructure, and maintain a degree of independence that small states rarely enjoy.
That era is ending.
Tasmania’s own‑source revenue has collapsed to just 30 per cent of government spending — far below the 37 per cent target set for 2032/33. That number isn’t abstract. It measures the state’s ability to stand on its own feet. And it is shrinking fast.
Government business returns — the dividends and tax equivalents that once cushioned the budget — have fallen to their lowest level in years. Strip away the Mersey Hospital “dividend”, which was nothing more than a disguised drawdown of an old federal grant, and the real figure is just $141 million. Treasury’s forward estimates promise a miraculous rebound to $448 million by 2028/29, but that projection rests almost entirely on Hydro. By then, Hydro alone is expected to deliver $250 million.
The problem is simple: Hydro is in no position to deliver it.
The 2024/25 year was a disaster. Hydro’s storages were hammered by a second consecutive dry year. Generation fell. Imports surged. Cash flow collapsed. Underlying profit was negative. Net debt blew past $1 billion. Hydro had to cash in hedges early, and borrow more just to pay last year’s dividend and keep the lights on.
And yet, even in this bleak year, Hydro was saved by a stroke of luck that will never happen again: more than $100 million in Inter‑Regional Revenues (IRRs) from Basslink’s unregulated arbitrage model. That windfall masked the true extent of Hydro’s losses. Without it, the underlying loss would have been far worse.
From July 2025, Basslink is back under APA’s control. From July 2026, it becomes a regulated transmission asset. The arbitrage gravy train is over. Hydro will have to compete in Victoria like everyone else. Imports will be a survival tool, not a profit centre. Exports will only earn the Tasmanian price unless Hydro pays for IRRs at auction – and past experience from Murraylink shows that the margin on regulated IRRs is thin at best.
Meanwhile, the government continues to promote Marinus Link with claims that defy belief. Ministers Duigan and Ogilvie declared that Marinus would add $470 million a year to the state’s bottom line, a figure drawn from heavily redacted modelling that represents system‑wide theoretical benefits across the NEM, not cash flowing into Hydro’s coffers. It is the same sleight of hand we saw in the stadium debate, where gross economic activity was presented as profit. The same pattern we saw with TT‑Line’s spiralling costs and the fiasco of Berth 3 in Devonport. The same refusal to confront reality.
For a time, the “final straw” seemed to be the Government Business Scrutiny hearings, where the government refused to disclose Hydro’s revenue and direct costs. Not because the information doesn’t exist. Not because it would harm Hydro’s competitive position. But because it was “commercial in confidence”. Information that is publicly available, if you know where to look, was withheld from Parliament.
So, I went looking myself. What I found was staggering.
Power Purchase Agreements (PPAs), the very contracts that are supposed to underpin Tasmania’s renewable future, generated $65 million in losses in 2024/25. Not a rounding error. Not a temporary blip. A structural loss from fixed‑price LGC obligations that are now deeply underwater.
Inter‑Regional Revenues, more than $100 million after fees to Basslink, were needed to plug the hole. Without them, Hydro’s underlying loss would have been catastrophic.
And the comforting myths we are fed that Tasmania will benefit from “cheap Victorian imports” and “high Victorian export prices”, collapse the moment you understand how the NEM actually works. There is no bilateral trading. There is no guaranteed benefit. There is only dispatch, constraints, and regional pricing — and most of the simplistic claims made in public debate bear no resemblance to reality.
But then came something even more revealing.
Hydro’s CEO entered the public debate with an opinion piece that repeated the very myths that have distorted Tasmania’s energy conversation for years, including the claim that Tasmania will “be able to import surplus wind and solar, often at very low or even negative prices (which means we get paid to import the surplus energy).This statement is simply incompatible with how the NEM works in a regulated environment. Tasmania settles at the Tasmanian price. Always. Negative Victorian prices do not flow across Basslink or Marinus. They never have, and they never will.
When the chief executive of the state’s most important financial asset publicly repeats claims that contradict the basic mechanics of the market Hydro operates in, it becomes clear that the gap between public narrative and financial reality is now too wide to ignore.
That more than anything is why I decided to write an Explainer. This is the first Chapter in what will be an 18-part series.
Because electricity is now the single most important issue facing the state. Because Hydro’s financial health is inseparable from Tasmania’s fiscal health. Because Marinus, PPAs, IRRs, LGCs, FCAS, and the NEM are not optional technicalities, they are the machinery that will determine whether Tasmania remains solvent, secure, and self‑reliant.
And because the public is being asked to accept multi‑billion‑dollar decisions on the basis of redacted documents, misleading claims, and a refusal to disclose basic financial information. If government won’t explain it, someone else has to. This series will do exactly that.