AGL Energy Limited will purchase the entire output and dispatch rights from Queensland's 282MW gas- and diesel-fired Oakey power station until 2014, in a deal worth approximately A$165 million, for an initial outlay of A$5 million, the Australian utility has revealed.

AGL will be responsible for the supply of fuel to the peaking plant, located west of Toowoomba, and will have full discretionary dispatch rights and benefits from any revenue it produces from the wholesale market or derivative trading, until December 2014.

AGL’s managing director, Paul Anthony, said: This is a very creative deal – AGL has, in effect, purchased a power station for the next seven years for an initial payment of A$5 million…We are able to avoid the significant capital outlay required to build a similar power plant, in return for annual capacity payments of about A$30 million per year.

Mr Anthony said that the agreement with the Queensland government’s Enertrade would help to enhance AGL’s strategic position in the newly-competitive Queensland energy market. AGL is forecasting an indicative total Queensland load of 70TW hours over the seven-year agreement.

This complements our recent acquisitions of Queensland Gas Company, Sun Gas and Powerdirect in the region, provides physical risk mitigation to power prices and arbitrage opportunities between the fuel types of gas and diesel, Mr Anthony said.

He added that the agreement would deliver to AGL a cost-effective hedge against price rises for the next seven years, at a cost below the market price of comparable risk management instruments, delivering a net present value benefit of about A$15 million.

Together with our existing portfolio of generating plant this initiative will bring the generation under our control to almost 3,600MW, Mr Anthony concluded.