First NSW REZ access auction – a guide to LTESAs and access rights

By Karla Drinkwater, Scott McCoy, Sheree Aitken
Climate Change Dealmakers & Investors Energy Environment & Planning Government Private Capital Renewable Energy

Be prepared for Tender Round 4 11 min read

The competitive tenders for long-term energy service agreements (LTESAs) are well underway, forming part of the delivery of the New South Wales Energy Infrastructure Roadmap by the State Government.

The next tender round (Tender Round 4) will be the first to offer access rights for projects to connect to the new transmission infrastructure being developed in the Central West Orana Renewable Energy Zone (CWO REZ) and will also offer generation LTESAs. Tender Round 4 is scheduled to commence in October 2023.

This Insight gives a high-level overview of the key terms of LTESAs and the REZ access rights agreements.

Key takeaways

  • Tender Round 4 (generation LTESA and CWO access rights) is seeking an indicative amount of 3,000GWh of renewable generation, with up to 5.84GW being made available for the CWO REZ access rights (if this amount is not reached in Tender Round 4, the remaining CWO REZ access rights may be made available in subsequent tender rounds).
  • Participation in LTESA auctions is not limited to projects located in a declared NSW REZ but those outside are subject to additional 'outstanding merit' assessment criteria. However, projects seeking both an LTESA and an access right must be located in a declared NSW REZ.
  • There are a number of key matters proponents should be aware of when bidding for an LTESA and/or access right in Tender Round 4. We highlight them below, as well as key considerations for project financing.

Who in your organisation needs to know about this?

Commercial teams, legal teams and board members of renewable energy or energy storage projects looking to participate in future tender rounds, as well as investors and key stakeholders interested in the latest developments in the Government's implementation of the NSW Electricity Infrastructure Roadmap.

LTESAs in a nutshell

LTESAs are contracts containing a series of options for:

  • short-term swaps over a contract term up to 20 years, in the case of generation (GEN) LTESAs; or
  • annuity top-up contracts for a contract term up to 40 years,1 in the case of long-duration storage (LDS) LTESAs, and up to 10 years, in the case of firming LTESAs.

LTESAs are being awarded through competitive tender processes conducted by AEMO Services Limited, as Consumer Trustee (AEMO Services). These competitive tender processes may also include the ability to bid for access rights for a declared NSW REZ. If awarded, the access right will enable the project to connect to new infrastructure in the nominated NSW REZ to which the tender round related.

Those proponents in declared REZs that require both an LTESA and an access right must bid for, and obtain, both in a single competitive tender round. 

The award of an:

  • LTESA is conditional on entry into, and compliance with, a Project Development Agreement (PDA) (which sets out the obligations for achieving financial close, constructing and commissioning the project, and social licence commitments).2 The PDA and LTESA are entered into between the Scheme Financial Vehicle (SFV) and project entity (LTES operator).
  • Access right is conditional upon entry into, and compliance with, an Access Project Development Agreement (access PDA) (which sets out the obligations for constructing and commissioning the project, social licence commitments and complying with the REZ generator guidelines) and an access payment deed (which sets out the obligations on the access right holder to pay the access fees, provide security bonding and pay termination amounts (in certain scenarios)). The access PDA is entered into by EnergyCo and the project entity (access right holder). The access payment deed is entered into by the SFV and the access right holder. Access right holders will also be required to enter into a 'energy services connection agreement' (the REZ equivalent of a connection agreement) with the REZ network operator. Access right holders are required to submit an application to connect the project to the REZ network operator within a specified timeframe (currently three months after execution of the access PDA).

Those projects that are awarded both an LTESA and an access right will need to enter into each of the documents mentioned above (the PDA will be amended to remove any provisions that are addressed in the access PDA).

Key provisions

We have set out below some of the key provisions in the GEN LTESA, PDA, access PDA and access payment deed to be aware of for Tender Round 4 (similar provisions apply to the other forms of LTESA).

  • Indemnity regime includes non-fault based indemnities (some of which are uncapped) that allocate risks to LTES operators / access right holders that are not within their reasonable control: eg the indemnity for death or personal injury is not limited to loss arising from the project and/or the actions of the LTES operator.
  • Access payment deed requires the access right holder to provide bonding for the duration of the access right to guarantee payment of the access fee and any termination amounts under the access PDA or PDA. We understand that the bonding requirements will be refined before Tender Round 4, and be sized to cover any potential exposure to the SFV and/or consumers in the event the access right holder does not proceed with their project post award and their REZ connection assets do not proceed.
  • Limited circumstances for adjusting the access fee. The access fee for the access rights will be determined by AEMO services (as Consumer Trustee) during the tender process and the determination will include the circumstances in which the access fee may be varied (eg changes in MW requested by the proponent). It is anticipated, based on the information supplied by AEMO Services, that the access fee will only be adjusted upwards. It is also anticipated that it will be indexed quarterly and discounts may be offered to incentivise upfront payments.
  • Reporting requirements require LTES operators / access right holders to self-report potential and actual material breaches of their obligations. They are also required to report on complaints received and legal proceedings commenced in relation to the project – this requirement is not subject to any materiality threshold, or subject to any privacy or confidentiality requirements.
  • Relief for 'change in law' events in GEN LTESAs excludes any changes in planning or environmental requirements associated with the development, construction, operation or decommissioning of the project. However, relief for these events (and any changes to the access scheme declaration) is available to access right holders under the access PDA.
  • Tender representations and warranties from LTES operator / access right holder are broad, and include a warranty that (1) all materials and information provided in connection with its bid (other than forecasts and projections) were true, correct and not misleading in any material respect as at the tender submission date; and (2) all forecasts and projections provided in connection with its bid were prepared using due care and skill based on assumptions that the LTES operator / access right holder believed, in good faith, were fair and reasonable as at the tender submission date.
  • The SFV and EnergyCo have broad termination rights, which include the ability to terminate:
    • where the LTES operator / access rights holder fails to provide any required security (there is inconsistency in treatment in the documents, particularly the access payment deed, and in some cases no applicable cure period);
    • where the LTES operator / access rights holder fails to comply with social licence commitments (subject to the cure plan regime); or
    • where an express representation made by the LTES operator/access rights holder under the agreement or as part of its tender submission is incorrect or misleading in any material respect (subject to the cure period and, in the case of termination for tender representation, a requirement for the SFV to have notified the LTES operator of the relevant tender misrepresentation on or before financial close)3.

The grounds for termination by the LTES operator / access right holder are far more limited.

LTESA considerations for project financing

One of the primary objectives of LTESAs is to encourage investment in new generation and storage infrastructure in NSW by reducing risk for investors through providing a protection mechanism against low wholesale electricity prices. The key to that is giving greater confidence to project financiers when investing in new projects.

In addition to those set out above, there are a number of other key points for investors and financiers to consider when negotiating LTESAs to support the project finance of a project.

No ability to change the fixed price

There is no ability to change the fixed price during the term of the LTESA once it has been set. The fixed price is set through a competitive tender process, with AEMO Services preferring those projects that have a lower fixed price and therefore have a lower likelihood of being exercised.4 The default position is that the fixed price is a non-escalating, bundled price, and the SFV is entitled to all products or revenues from green products and capacity products associated with generation the subject of an LTESA swap, although project proponents may bid an alternative.

Project proponents will need to ensure that the fixed price will be sufficient for the project to meet its debt service covenants in an option period where the option is exercised. This may be difficult if the project financing is not yet in place at the time of the tender, or where project costs (eg the construction and operations contracts) have not yet been locked in. The long tenor of the LTESA also means that the fixed rate may not be sufficient to meet interest rate increases on a refinancing.

Maximum of 10 x two-year swaps

There is a maximum of 10 x two-year swaps under the generation LTESA. The fixed duration of the cash settled swap is two financial years (except if there is only one year remaining within the contract term, in which case it is one year). Option periods begin on 1 July and end 30 June. Notice of intention to exercise an option must be provided at least six months, but not more than 12 months, before the beginning of an option period, following the commercial operations date.

This may mean that there is an initial period of up to 12 months (and possibly longer) after the commercial acceptance date where the project revenues are unhedged. Additionally, due to the notice requirements and restrictions on when option periods can begin, LTESAs will likely be slow to respond to a sudden change in a project's revenues, such as the sudden loss of a PPA. Eg the loss of a PPA in August 2025 would mean that a swap exercised would not commence until 1 July 2026.

Finally, once delivered, an exercise notice may not be withdrawn. So, once an option notice has been delivered, if an agreement is reached with a new counterparty to enter into a an offtake agreement, there will be a period of potentially up to three years before the LTESA swap period runs off and the new offtake can become effective.

Excess profit is subject to a repayment mechanism

Any excess profit in a repayment year is subject to a repayment mechanism if the dispatched weighted flowing price for a particular financial year is above a 'repayment threshold price' bid during the tender, and where the SFV has been the net payer under the exercised options. The policy rationale for inclusion of the repayment mechanism is to ensure repayment where returns are above a project's targeted equity return: eg where there are low electricity prices and significant payouts in the early years of an LTESA but high electricity prices and no option exercise during an LTESA’s later years, such that projects earn ‘super profits’.

To incentivise projects to enter into wholesale market contracts and not rely on LTESA payments, the repayment obligation is reduced where the project proponent has entered into an arm's length offtake agreement – the output that is contracted under an eligible offtake agreement is excluded from the repayment mechanism.

Repayments are lump sums payable shortly after the end of each year in which a repayment is due. We expect that project financiers will be focused on ensuring that the project proponent has sufficient funding available in any particular year to meet its repayment obligations. This may require reserving, or some other funding mechanism, to give certainty that payments can be made.

It is worth noting that a project proponent can request deferral of the repayment obligation where it is at risk of financial hardship if is required to pay.

Tripartite deed

The SFV agrees to enter into a tripartite deed with financiers of the project proponent. The form of the tripartite deed is set out as an annexure to the LTESA. While the tripartite agreement seems reasonably standard, there is no obligation on the SFV to accept any changes to the form, including to cure periods, should it be subsequently requested by financiers.

Actions you can take now

  • Consider whether your project may be eligible to participate in future tender rounds, including the upcoming Tender Round 4 for generation LTESAs with CWO REZ access rights.
  • To understand the LTESAs and the suite of full form documents in more detail, and to stay on top of updates, subscribe to receive our Insights. If you have further questions or would like to discuss LTESAs or REZ access rights agreements in more detail, please reach out to any of the people below.


  1. Term of LDS LTESA will be up to 14 years for chemical batteries, up to 40 years for pumped hydro, and the lesser of 40 years or the asset life for all other LDS technologies.

  2. For DR LTESAs, the PDA requirements have been incorporated into the LTESA terms and conditions.

  3. NB: previously the SFV had two years after the commercial operations date to exercise its termination right for tender misrepresentations. Based on the draft GEN-LTESA for Tender Round 4, this right appears to have been restricted.

  4. Financial merit criteria as set out in the Tender Guidelines issued by the Consumer Trustee for Round 3, and expected to be similar for Tender Round 4.