This penultimate chapter is a longer post that focuses on the path forward with a particular focus on the next five years of transition. It is a critically important period for the state and for our energy businesses, especially Hydro Tasmania.
This follows the previous chapters that have sought to explain 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. previous chapters have taken a closer look at the current financial position of Hydro Tasmania. Read together the series seek 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
APA – Owner of Basslink
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.
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.
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.
WoSBC – Whole‑of‑State Business Case: The Tasmanian Government’s business case for Marinus Link.
Chapter 17: The Path Forward
Six months into the 2025-26 financial year, Tasmania finds itself in a moment of reckoning. The story we have been told about Hydro – of steady earnings, strong demand, reliable arbitrage revenue, and a future built on export riches – no longer matches the world we are actually living in. The numbers emerging from this first half‑year are not a temporary dip or a weather‑driven anomaly. They are the early signs of a structural shift in Tasmania’s energy economy, one that exposes the fragility of Hydro’s financial position and the risks the state has chosen not to confront.
Electricity consumption has fallen 7% in six months, continuing a decade‑long decline that no forecast has ever successfully reversed. Rooftop solar, efficiency gains, and the absence of new industrial load are shrinking Hydro’s customer base year after year. Spot prices have dropped from $94 to $72/MWh, cutting directly into Hydro’s marginal revenue – because no matter how many contracts Hydro holds, it is structurally long electricity, and the value of its discretionary generation is set by the spot market. At the same time, inter‑regional revenues (IRRs) have collapsed from $72 million to $28.5 million as APA repositions the interconnector to capture the arbitrage upside that once flowed to Hydro. And the Power Purchase Agreements (PPAs) – especially Woolnorth and Granville Harbour – are generating real, unavoidable cash losses every time the wind blows, with Hydro paying around $50 for Large Generation Certificates (LGCs) it can now sell for as little as $6.
These pressures are arriving simultaneously, and they are arriving at the worst possible time. Hydro’s debt is rising. Cash flow is tightening. The balance sheet is more leveraged than at any point in the past decade. And the State Budget is more dependent than ever on Hydro dividends that the reconstructed accounts simply cannot support. The operating engine has weakened just as the fiscal reliance has grown.
Yet almost all public discussion focuses on the promised riches of the “Marinus era” – the export boom, the firming revenue, the new industries, the transformation of Tasmania into a renewable superpower. What is missing is any serious conversation about the period we must survive before Marinus arrives. The transition years – 2025 to 2030 – are the most challenging in Hydro’s modern history. They are defined by falling demand, falling prices, rising risk, and a Hydro that is financially weaker than the public narrative admits. This is the period in which Tasmania’s energy system, and its fiscal position, are most exposed.
The path forward cannot begin with the Marinus era. It must begin with the transition. Because the question Tasmania faces is not whether Marinus will deliver benefits in the 2030s. The question is whether Hydro – and the State Budget that depends on it – can remain stable, solvent, and credible in the years between now and then. The transition is the test. And right now, the state is not prepared for it.
The Transition Era: 2025-2030 – The Missing Conversation
Before Tasmania can even begin to think about the Marinus era, it must survive the transition. This is the period we are now entering – a five‑year window in which Hydro’s earnings are under pressure, the State Budget is exposed, and the assumptions that once underpinned Tasmania’s energy strategy have fallen away. It is the most challenging period in Hydro’s modern history, yet it is the period that receives the least attention. The public narrative has leapt ahead to the 2030s, to the promised export boom and firming revenue, while the years immediately in front of us remain largely unexamined.
The transition era is defined by a set of structural pressures that cannot be wished away. The first is falling demand. Tasmania has spent two decades planning for growth that never arrived. Every major modelling exercise – from Basslink’s original business case to the Whole of State Business Case (WoSBC) – assumed rising consumption, new industrial load, and a steadily expanding market for Hydro’s generation. Instead, demand has drifted downward year after year. Rooftop solar, efficiency gains, and the absence of new major industrial customers have eroded Hydro’s revenue base in slow motion. The 7% fall in the first half of 2025-26 is not a shock; it is the continuation of a long‑term trend that no amount of optimism has ever reversed.
The second pressure is falling prices. Hydro is structurally long electricity. It produces far more than its major industrial customers (MIs) and Aurora Energy contracts absorb, and the value of that discretionary generation is set entirely by the spot market. When prices fall from $94 to $72/MWh, Hydro earns less on every marginal MWh it generates. The MI contracts do not rise when spot prices rise, and they do not fall when spot prices fall – they simply sit there. Aurora’s hedges protect Aurora, not Hydro. The result is a squeeze on Hydro’s merchant revenue at the very moment it needs every dollar.
The third pressure is the loss of arbitrage revenue. For years, Basslink’s inter‑regional residues provided Hydro with a valuable buffer – a source of upside that helped smooth volatility and support dividends. Under APA’s control, that upside has evaporated. Inter‑regional revenues have collapsed from $72 million to $28.5 million in six months as APA rethinks its Basslink strategy. Hydro saved the fixed fee it once paid APA, but it lost far more in arbitrage value. The net effect is a material hit to Hydro’s bottom line, and one that will persist until Basslink becomes regulated, if it ever does. Even then if Hydro wants a share of IRRs it will have to bid for them at auction. There won’t be any more free lunches.
The fourth pressure is the most corrosive: structural losses on PPAs. The Woolnorth and Granville Harbour contracts force Hydro to buy electricity and LGCs at fixed prices and sell them into a falling market. These are not accounting losses. They are real, unavoidable cash losses that scale with wind output. Hydro pays around $50 for each LGC and sells it for as little as $6. It loses money on every MWh when spot prices fall below the strike price. Hydro itself has disclosed $142 million in future losses on these contracts. That number is real, and it is growing.
The fifth pressure is rising debt and tightening cash flow. Hydro’s balance sheet is more leveraged than at any point in the past decade. Cash flow is weakening. The company is more exposed to drought, settlement risk, and market volatility than the public narrative acknowledges. Yet Treasury’s forward estimates assume Hydro will deliver $250 million a year in dividends and tax equivalents by 2028/29 – an assumption that bears no resemblance to the reconstructed accounts.
The sixth pressure is opacity. The WoSBC redactions, the absence of disaggregated revenue and cost data, the reliance on revaluations to bolster reported profit, and the lack of clear disclosure around risk exposures have all contributed to a widening gap between Hydro’s public narrative and its financial reality. This opacity has allowed optimistic assumptions to persist unchallenged, and it has prevented Parliament and the public from understanding the pressures Hydro faces.
The seventh pressure is governance drift. Hydro’s board and executive have been allowed to operate in a space where selective disclosure is tolerated, scrutiny is episodic, and the incentives to present a smooth narrative outweigh the incentives to present a complete one. The institutions capable of providing independent oversight – the Auditor‑General, the Economic Regulator, the Public Accounts Committee – would require specialist support to enable a more detailed examination of Hydro’s financial position in the depth required.
And finally, the eighth pressure is strategic confusion. Hydro is expected to be a commercial generator, a system security provider, a fiscal asset, and a policy instrument – all at once. These roles are not compatible. They pull the organisation in different directions, create conflicting incentives, and obscure the true purpose Hydro is meant to serve. Without clarity, every decision becomes harder, every risk becomes larger, and every narrative becomes more fragile.
These are the obstacles Tasmania must confront in the transition years. They are not insurmountable. But they cannot be ignored, and they cannot be solved by waiting for the Marinus era to arrive. The transition is where the real risk lies. The transition is where the work must begin.
The Missing Foundations: Demand Forecasts and the Trigger for Development
There is another obstacle – one so fundamental that its absence undermines every plan, every projection, and every promise made about Tasmania’s energy future: the state has no clear, realistic demand forecast.
Every major decision of the past twenty years – Basslink, the 2008-2012 wind build‑out, the Battery of the Nation narrative, the WoSBC, and now Marinus – has been built on the assumption of rising demand. Yet demand has not risen. It has fallen. It is now roughly 3,000 GWh below the level assumed in Basslink’s original business case. And still, Tasmania continues to plan for growth that never arrives.
Older Tasmanians still tell the story of Sir Allan Knight, the legendary head of the old Hydro‑Electric Commission (HEC), who was said to forecast demand by placing a ruler on a graph and drawing a straight line pointing confidently upward. In his era, that line was not fantasy – demand really was rising year after year, smelters were expanding, and electrification was transforming the state. The straight line reflected the world he lived in. The problem is that Tasmania has never quite let go of that mindset. The ruler is still pointing skywards, long after the data stopped doing so. We continue to plan as if the old HEC growth curve still applies, even as consumption drifts lower, rooftop solar eats into grid demand, and the industrial base shrinks. The legacy of that straight‑line culture lingers in every modern forecast: an instinctive belief that growth will return simply because it always used to.
A credible energy strategy begins with a credible demand outlook. Without it, every other element – generation, storage, transmission, firming, and fiscal planning – becomes guesswork. The state cannot plan new infrastructure, new PPAs, or new industrial policy without first understanding how much electricity Tasmania will actually consume. At present, no such forecast exists. The Government has not published one. Hydro has not published one. TasNetworks’ planning documents gesture toward growth, but the numbers never materialise. The entire system is being steered without a map.
This absence matters because demand is the trigger for development. New generation does not appear because a government announces a vision. It appears because someone is willing to buy the electricity. New storage does not appear because a consultant writes a report. It appears because the market signals scarcity. New industry does not appear because Tasmania declares itself a renewable superpower. It appears because the economics stack up.
Right now, none of those triggers exist. Hydro is not signalling a need for new supply. The market is not signalling scarcity. Tyre-kickers looking for a bargain aren’t a reliable market signal. Demand is not rising. Prices are not high. And the only major projects on the table – the half‑completed Tarraleah redevelopment and the speculative Cethana pumped hydro proposal – exist more as symbols of ambition than as responses to market conditions. Tarraleah is a necessary refurbishment, not a growth project. Cethana is a concept without a customer, a business case, or a credible pathway to investment.
In a functioning market, Hydro would be the entity that triggers new development. It would publish demand forecasts, identify future supply gaps, and procure new generation or storage when needed. It would signal to developers when the state requires new capacity and under what terms. Instead, Hydro has been silent. It has not articulated a demand outlook, a supply outlook, or a procurement strategy. It has not explained how Tasmania will meet future needs, because it has not defined what those needs are.
This silence has consequences. Developers cannot invest without a buyer. Industry cannot expand without certainty. The state cannot plan without a forecast. And Hydro cannot stabilise without a strategy. The result is a vacuum – a planning void in which the only thing that grows is the gap between political aspiration and operational reality.
Tasmania cannot navigate the transition, let alone the Marinus era, without a clear understanding of future demand and a transparent mechanism for triggering new development. Until those foundations are laid, every major project – from Tarraleah to Cethana to Marinus itself – rests on assumptions rather than evidence.
The Marinus Era: Promise, Uncertainty, and Selective Storytelling
For almost a decade, Tasmania’s political and energy narrative has been anchored to a single idea: that Marinus Link will unlock a new era of prosperity. The story is familiar. Tasmania will export firmed renewable energy into a hungry mainland market. Victorian prices will be high. Negative prices will flow south. Hydro will earn a premium for its flexibility. New industries will flock to the state. The dividends will surge. The Budget will strengthen. And Tasmania will become a renewable superpower.
It is a compelling vision. But it is also a vision built almost entirely on assumptions – assumptions that have shifted dramatically since the project was conceived, and assumptions that were never fully disclosed to the public in the first place.
The Whole‑of‑State Benefits Case was heavily redacted. Key modelling inputs were withheld. The public was asked to accept a multi‑billion‑dollar infrastructure decision without seeing the price forecasts, demand projections, risk assessments, or sensitivity tests that underpinned it. The Government assured Tasmanians that the benefits were strong, the risks were manageable, and the economics were sound. If that was truly the case, why did TasNetworks need an additional $346 million gift from the Australian Government to offset the regulated asset base, and thus costs to consumers? Was the deal that good? The numbers we have reconstructed throughout these chapters tell a different story: one in which the benefits are uncertain, the risks are material, and the economics depend on conditions that no longer exist.
The Marinus narrative assumes rising Victorian prices. Yet prices have fallen sharply. It assumes strong Tasmanian demand. Yet demand is falling. It assumes Hydro will capture arbitrage value. Yet APA now controls Basslink’s upside, and Marinus will be regulated, not a merchant link. It assumes Hydro will earn a premium for firming. Yet firming revenue depends on volatility, scarcity, and mainland deficits – none of which are guaranteed in a grid that is rapidly adding storage, transmission, and flexible generation. It assumes Tasmania will have surplus energy to export. Yet falling demand and rising rooftop solar mean Hydro’s surplus is shrinking, not growing. Paradoxically this is because less demand means less cycling, more spill, and ultimately less controllable water – the opposite of the growing exportable surplus the Marinus narrative assumes.
Most importantly, the Marinus narrative assumes that Hydro will be financially strong enough to participate in this new era. But the six‑month numbers show a company under pressure: falling revenue, rising debt, structural losses on PPAs, and a balance sheet more leveraged than at any point in the past decade. The transition era is weakening Hydro at the very moment the Marinus era requires it to be strong.
None of this means Marinus is doomed. It means the benefits are uncertain, the risks are real, and the public narrative has been selective. The project may yet deliver value – but that value is long‑dated, contingent, and dependent on market conditions that are outside Tasmania’s control. The state has spent years talking about the riches of the 2030s while ignoring the fragility of the 2020s. It has planned for the destination while overlooking the journey.
The truth is simple: Marinus may or may not deliver the promised benefits. But none of those benefits matter if Hydro is weakened before the project arrives. The state cannot afford to build its future on a vision of the 2030s while ignoring the risks of the years immediately ahead. The transition era is where the danger lies. The Marinus era is where the hope lies. And the gap between the two is where Tasmania must now focus its attention.
The Path Forward: Five Reforms That Cannot Wait
By now, the shape of Hydro’s financial position is clear. The operating engine has weakened. The balance sheet has become more leveraged. Cash flow has tightened. And the public narrative has drifted further and further from the numbers. None of this is irreversible. But it will not correct itself. Tasmania now faces a choice: continue down a path where secrecy, selective disclosure, and optimistic assumptions shape billion‑dollar decisions, or take the steps needed to restore transparency, rebuild confidence, and put Hydro – and the state – on a sustainable footing.
The first step is honesty. Hydro’s financial position is not catastrophic, but it is fragile. The loss of IRRs, the structural PPA losses, the rising debt, and the exposure to drought and settlement risk are real pressures that need to be acknowledged openly. Pretending that negative Victorian prices will flow into Tasmania, or that firming revenue is guaranteed, or that revaluations represent real financial strength, only delays the moment when the state must confront the truth. A clear, factual account of Hydro’s operating environment is the foundation for every other reform.
The second step is transparency. The WoSBC redactions were a turning point, not necessarily because the project itself was flawed, but because the public was asked to accept a major infrastructure decision without access to the assumptions that underpinned it. That cannot continue. Tasmania needs a disclosure regime that treats energy modelling, risk assessments, and financial projections as public goods, not proprietary secrets. Hydro should publish its revenue and cost breakdowns, its risk exposures, and its forward assumptions in a form that allows Parliament and the public to understand the pressures it faces. The annual report should be restructured so that the operating result, the cash flow pressures, and the liability profile are visible without forensic reconstruction.
The third step is governance reform. Hydro’s board and executive must be accountable not only for operational performance but for the accuracy and clarity of the information they provide to government and the public. The energy portfolio needs stronger oversight – not in the sense of political interference, but in the sense of independent scrutiny. Tasmania has institutions capable of providing that scrutiny: the Auditor‑General, the Economic Regulator, the Public Accounts Committee. They should be empowered, resourced, and expected, to examine Hydro’s financial position in detail, including the assumptions behind major projects and the risks embedded in long‑term contracts.
The fourth step is fiscal realism. Treasury’s forward estimates assume that Hydro will deliver $250 million a year in dividends and tax equivalents by 2028-29. Nothing in the reconstructed accounts supports that assumption. The state must revise its projections to reflect Hydro’s actual operating capacity, not its hoped‑for performance. This may require difficult decisions about spending, borrowing, or revenue. But those decisions will be far more difficult if they are postponed until the gap between expectation and reality becomes unmanageable.
The fifth step is strategic clarity. Tasmania needs a coherent energy strategy that recognises the limits of arbitrage, the realities of regulated interconnection, the risks of drought, and the economics of firming. It must be grounded in the mechanics of the NEM, not in myths about negative prices or guaranteed export premiums. Hydro’s role in that strategy must be defined clearly: is it a commercial generator, a system security provider, a fiscal asset, or a policy instrument? It cannot be all four without tension. The state must decide what it wants Hydro to be, and then structure its governance, incentives, and reporting accordingly.
None of these steps require radical change. They require clarity, honesty, and a willingness to confront the numbers as they are, not as we wish them to be. Hydro remains a remarkable asset – technically sophisticated, operationally capable, and central to Tasmania’s identity. But its financial resilience has weakened, and the state’s fiscal dependence on it has grown. That combination demands a new approach.
The path forward is not about blame. It is about restoring confidence – in Hydro, in the energy system, and in the state’s financial future. The next and final chapter reflects on that future, and on the century‑long legacy that makes this moment so important.