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Managing Financial Risks for Small Hydropower Generation

Project Member(s): Novikov, A.

Funding or Partner Organisation: Waratah Power Pty Ltd (Waratah Power Pty Ltd Partnership)

Start year: 2013

Summary: Waratah Power is Australian-based company which develops scalable, high-capacity aggregated hydropower portfolios. It applies excellence in engineering, finance, and management, to build and manage portfolios of small hydropower projects in Australia and Asia-Pacific. Waratah is planning to participate in oncoming privatisation of NSW generation assets. The Waratah bid will hinge on finding most profitable way of aggregation for these assets in order to find a parcel with the best cost/profit ratio. It will employ generation asset output aggregation model using market load and price data and bespoke derivatives contract models. UTS will provide commentary on profitable trading strategies which include risk hedging. Scope The UTS proposes a two-facet solution enabling pricing and financing of intermittent generation into the NEM. This solution is comprised of: 1.Methodology (named Virtual Generator or VG) of constructing tailored Power Purchase Agreements (PPAs) enabling an intermittent power station to become a baseload supplier; and 2.Set of financial derivatives addressing to the needs of intermittent generators. The derivatives are designed to mitigate financial risk caused by the variability in generation due to exogenous events. UTS scientists will aggregate assets under consideration into VG model and embed it into ROP methodology. By testing various combinations of underlying assets with corresponding PPA structures, ROP will provide optimal selection of assets within each parcel. mitigate financial risk caused by the variability in generation due to exogenous events.

Keywords: Hydropower portfolios, Financial Risk, Real options, Virtual Generator

FOR Codes: Market-Based Mechanisms, Financial Economics