Ashurst advises on Australia's first pumped hydro power purchase agreement

Ashurst has acted for EnergyAustralia on the negotiation and execution of a power purchase agreement with Genex Power Limited (Genex) for exclusive supply of the offtake from the 250MW K2-Hydro Project, in the form of an Energy Storage Services Agreement (ESSA).  

The K2-Hydro Project, located in Kidston, Far North Queensland (270km NW of Townsville) is the first pumped storage hydro project in the National Energy Market in nearly 40 years and the world's first pumped hydro project using an abandoned gold mine.  It is expected to create more than 500 jobs during construction.  Crucially, it will provide EnergyAustralia with reliable, renewable generation that can be stored in the storage facility, and deployed to the National Energy Market on demand at peak times.  This means that the K2-Hydro Project's capacity to generate for eight hours, producing 2000 MWh can be deployed rapidly or flexibly, as required.

The ESSA has a term of up to 30 years, comprised of an initial 10 year term plus two additional 10 year options for extension.  Under the ESSA, Genex will provide the full operational dispatch rights for the K2-Hydro Project facility to EnergyAustralia (including P&L responsibility), in exchange for fixed annual payments which escalate over the 30 year term.  

At the end of the 30 year term (and conditional on the exercise of the two 10 year extension options), EnergyAustralia has an option to acquire Genex's shareholding in the K2-Hydro Project for a fixed cash payment.  The ESSA remains subject to several conditions precedent (including reaching financial close), which must be satisfied by 31 December, 2020.  

The K2-Hydro Project is the flagship project of Genex's Kidston Clean Energy Hub, which will utilise two existing mining pits (Wises and Eldridge) as the upper and lower reservoirs for the project. 

Ashurst team members from across Australia worked closely with EnergyAustralia to negotiate this transaction. Ashurst has advised on a range of matters for EnergyAustralia including appropriate corporate structuring of the K2-Hydro Project entities, project financing, a variety of project documents and material contracts, and a number of regulatory considerations.

Partner, Kylie Lane commented:

“We are delighted to have acted for EnergyAustralia on its consideration of this opportunity, which will secure reliable and renewable energy generation from the K2-Hydro Project.  Negotiating Australia's first pumped hydro power purchase agreement involved a range of complexities and we are pleased to have worked closely with EnergyAustralia to achieve its desired outcome.”

Partner, Paul Newman, also commented: 

"The electricity generation sector in Australia is transitioning from fossil fuels to renewables at a pace that is unprecedented.  A key challenge is how to do so whilst maintaining the reliability and security of the grid. Solutions like the Kidston Pumped Hydro Project are critical to the success of the transition – the first of its kind in Australia.  EnergyAustralia has been at the forefront of supporting innovative solutions like pumped hydro and battery technology. It is our privilege to work with the team from EnergyAustralia  on these "game changing"  projects."

The Ashurst team was led by partners Kylie Lane, Paul Newman, Lynda Tully, Grant Rowlands, Jeff Lynn, Damian Salsbury, Ian Kellock, Geoffrey Mann, Chris Redden, counsel Bronwyn Kirkwood and assisted by senior associates Adam Fyfe, Charlotte Britton, Lixian Liang, Melissa Molloy, Kellie Hairsine and lawyers Ravi Gosal, John Saunders, Nicholas Chant, Ian Harris, Alice Kim, James Sainty and Kyle Soekoe.