AGL Hydro Partnership sold 10,000 tonnes of the units in a forward trade to Westpac Banking Corporation, at a price of $19 per tonne, for settlement on 1 February, 2012. Westpac was advised on the transaction by its in-house legal team.

According to Mitzi Gillian, the partner leading the Minters team, the fact that AETUs and the Australian emissions trading scheme (AETS) have yet to come into existence provided a unique challenge.

“It’s obviously quite an innovative transaction. It hasn’t been done before [and] there are some drafting issues that need to be dealt with. How do you sell something that doesn’t exist yet and put in place sufficient certainty around the contract to make it all work?” she said.

Gillian explained that the Minters team looked carefully at all the material that has been published to date on the potential design of the AETS, as well as the way in which emissions trading units have been published internationally.

“We were able to distil out of that, with AGL, a fairly clear idea of what the key structural elements would be, but there is still a lot of detail yet to be worked through,” she said.

To deal with these remaining uncertainties, the document had to be drafted to cover numerous potential outcomes which will become certain only once the legislation is finalised.

AGL has developed a suite of renewable energy technologies including wind, hydro, solar and landfill gas — the largest privately owned fleet in Australia — which it predicts will be generating two million megawatt hours per annum by July 2010 (the date proposed for the commencement of the AETS). This has enabled it to commence trading AETUs before the official start date of the scheme.

According to Gillian, it is AGL’s intention that this transaction will be just the first of a number of forward trades that it will be involved with.

“The intention is to establish a forward market now…. and the expectation is that if the market develops a bit of liquidity then [AGL] will be both on the buy and sell side of a number of contracts and they’ll be able to meet their obligations that way.” she explained. “AGL thinks they’ve identified a need in the market and there will be a lot of interest.”

The contract has, therefore, been designed as standard firm agreement that AGL can use on an ongoing basis both in the position of buyer and seller.

“It was deliberately drafted as a balanced document that AGL would be happy to enter into as both buyer and seller.” Gillian said. “In the broader commercial context that’s a bit different, although in electricity trading it’s pretty common to have a master agreement in place where you agree to the same terms and conditions whether you’re the buyer or the seller.”