The Long-Term Energy Service Agreement (LTESA) scheme is a part of the New South Wales State Government’s ‘Electricity Infrastructure Roadmap’, the state’s plan to deliver new transmission, energy generation and storage to replace the state’s retiring coal-fired power stations. The Roadmap outlines goals to support the private sector to deliver at least 12 GW of new renewable electricity generation and 2 GW of long-duration storage (8 hours or more) by 2030 and is enabled by the Electricity Infrastructure Investment Act 2020.

LTESAs are an options contract, granting the LTES operator a series of rights (but not obligations) to access a minimum revenue for its project. LTESAs are essentially a ‘floor’ and ‘ceiling’ design: if projects earn below the floor, the LTESA ensures the operator will be “topped up to the floor”, i.e. paid the difference between the market price and the pre-agreed floor. If the project then earns above the ceiling, the operator must pay back a proportion of any money the project has received from the scheme administrator.

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There are two different types of LTESA – Generation LTESAs and Long Duration Storage LTESAs. Generation LTESAs are like Contracts for Difference, with payments to or from generators depending on the difference between a fixed price and the market price, while Long Duration Storage LTESAs provide a top up from actual net revenues to the agreed floor level. Generation LTESAs have a term length of up to 20 years and Long Duration Storage LTESAs have a term length of up to 14 years for chemical batteries and up to 40 years for pumped hydro. If the option is exercised, the option period is two years. The option can be exercised multiple times within the term, but if the asset owner believes better revenues can be secured without the option, they can operate without it once a two-year period expires.

The Australian Market Operator (AEMO) runs competitive tender processes to offer LTESAs, with eight merit criteria considered. However, financial value has the highest weighting of all criteria. As LTESAs are considered an insurance product against lower-than-expected wholesale energy price revenues, operators are expected (and encouraged) to seek other forms of revenue. These vary but can include wholesale electricity contracts or ancillary services provision.

The LTESA tender schedule is published for the next 10 years (currently to 2033) to provide long term certainty for project developers. As of its last tender (December 2023), the NSW Government has secured 5.79 GW of renewable energy and 574 MW of long-duration storage under the LTESA scheme. While no PSH project has yet successfully bid for a LTESA, the system has encouraged several developers to invest in projects for future bidding.

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