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Hedge Market Development
Index
Introduction
The Government Policy Statement of Electricity Governance May 2008 (GPS) invites the Electricity Commission (Commission) to give priority (among other things) to improving hedge market transparency and liquidity.
To progress this work the Commission formed the Hedge Market Development Steering Group (HMDSG) that operates within the Commission’s wholesale workstream. Its task has been to investigate and provide advice on issues relating to electricity and transmission hedges.
The HMDSG terms of reference and meeting information can be obtained from Hedge Market Development Steering Group.Hedge market survey
In June 2005 the Commission engaged UMR Research to undertake a survey of the hedge market. The results of this survey
were used to gather information on the scope and operation of the hedge market and assist with the identification of the key problems.
The survey was run again in 2007, and the report published in February 2008.
Initial consultation
HMDSG analysis and recommendations - released August 2006
The HMDSG considered in detail the issues relating to price risk management that affect the New Zealand electricity market. The HMDSG created an Overview Paper and a companion Technical Paper for the Commission that outlined the work the HMDSG had undertaken and conclusions it had reached. The reports also covered the HMDSG’s recommendations to the Commission on the initiatives that should be implemented and the procedures and timelines with which this should be done.
The HMDSG Overview pdf [290 KB] and Technical paper pdf [1858 KB] were released for consultation on 25 August 2006. The original consultation webpage is available for historic information. During consultation the HMDSG held a series of three industry briefings where members of the HMDSG presented their analysis pdf [192 KB] .Submissions were received from 22 organisations that represented a diverse range of parties with an interest in New Zealand’s electricity industry.
The following paper provides a summary of submissions on the Hedge Market Development Issues and Options paper, and presents the Hedge Market Development Steering Group’s analysis of the submissions
Development initiativesIn the initial consultation paper the HMDSG identified a package of initiatives that it considered likely to promote a significantly better functioning market for managing spot price risks. After reviewing submissions, the Commission considered that the initiatives would provide a useful platform for further consideration and development. For initiatives requiring rule changes, the Commission will consult on the specific proposals in accordance with the requirements of the Electricity Act 1992.
The proposed initiatives and progress on their development is provided below:
- Transmission Hedges
- Publication of risk management contract information
- Model Master Agreement
A standardised schedule for the purchase and sale of electricity derivative contracts. - EnergyHedge
This initiative involves the Commission inviting the owners of EnergyHedge to develop EnergyHedge’s services. - Centralised publication of outage and fuel
The Commission centralising outage and fuel information and converting information into GigaWatt-hours so that it is meaningful to risk management market participants. - Regular Survey
The Commission will undertake a regular survey of electricity market participants to ensure improvements in hedging are on track.
First Hedge Market Survey Report (August 2005)
Second Hedge Market Survey Report (February 2008) - Hedge market training providers
The Commission promoting greater purchaser understanding of electricity price risk management.
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