Risk Solutions International and CQ Energy
Engineering Risk Transfer for a Changing Energy Market

Australia’s evolving energy market is creating exposures that do not always fit established risk-transfer structures. Weather-driven volatility, new generation technologies and changing financing requirements are creating risks that must be understood at the market and asset level before they can be transferred.

Risk Solutions International and CQ Energy owned by EnergyOne Ltd (ASX: EOL), have operated as a joint venture at the intersection of energy markets and alternative risk transfer since 2008.

Together, RSI and CQ translate energy-market exposures into workable risk-transfer structures and connect clients with counterparties suited to the transaction. Their clients include power generators, retailers, commodity traders and independent power producers across Australia’s National Electricity Market.

“We work closely with clients to structure transactions around what they actually require to manage risk, including the premium levels and limits they are working toward,” says Patrick Bourke, director at RSI.

As these structures can be unfamiliar to internal stakeholders, the partnership helps clients understand how the derivatives differ from standard market instruments, how they settle and what data they require. This includes working with trading teams and senior management before internal approval.

One instance involved hedging against low wholesale prices in a specific region, using ERA5 gridded irradiance data as a proxy for solar generation. CQ and RSI supported the transaction from concept, structuring and pricing through acceptance and the first trade confirmation.

Turning Complex Exposures into Workable Structures

Every energy portfolio carries a different combination of generation, demand, commodity and weather exposure, making standardized solutions difficult to apply. RSI and CQ first determine what the client needs to transfer, including protection, limits, premium levels and settlement preferences, before taking the structure to potential counterparties.

Technical reports, operational data and historical loss and payout information help counterparties price the exposure, while strict confidentiality protects the client’s trading strategy and risk position. Counterparties differ in the risks they are prepared and equipped to support, including commodity-linked and weather-based exposures.

Wind firming illustrates the challenge. An asset owner may want settlement against actual generation, while a seller may prefer simulated output due to limited operating history or moralhazard concerns. RSI and CQ find a settlement approach that both can support.

That capability evolved with the market. In 2014, CQ and RSI completed Australia’s first wind-firming transaction linked to power prices and based on actual wind generation, addressing an emerging exposure that has since grown with the expansion of wind generation.

Managing Risk across Market Transition

Newer technologies have created different exposures. For batteries, cycle limits and annual degradation can affect longterm pricing. These technical changes are agreed upon between the buyer and seller upfront and incorporated into the settlement mechanism.

“The technical aspects of a project can change over time, and we ensure those changes are reflected in the pricing and communicated and agreed between the parties upfront,” says Ian Tannebring, head of risk transfer for CQ.

The structures can also support project financing. For wind, solar and battery developers, banks and financiers often require highly rated counterparties, making the credit standing and market experience of potential sellers an important part of the transaction.

For conventional generators, forced-outage contracts address the financial and market impact of lost generation, with historical generation and availability data helping counterparties underwrite the exposure even when they cannot inspect the plant directly.

The protection can also support additional hedging and perform its purpose without a payout when other parts of the client’s portfolio benefit from market conditions. Timely payouts become critical when a shortfall affects cash flow or capacity.

Australia’s energy market will continue to combine legacy and emerging generation rather than shift cleanly from one to the other. As new asset classes bring unfamiliar exposures, RSI and CQ continue adapting risk-transfer structures to the market’s changing needs.