The locational hedges project is one of the projects of the Market Development Programme (MDP).  This project involves the development of a mechanism for parties to hedge against locational price risk.  Locational price risk is the extent to which the price for electricity at a node varies as a result of transmission losses and constraints.  Participants in the wholesale electricity market are currently limited in how they can manage locational price risk.  The Commission is considering options to assist participants to manage locational price risk.

• The Issues Paper (July 2008)
  

• Submissions

• Commission considerations
• Consultation (October 2009)
  

The Issues Paper (July 2008)

The Commission released a consultation paper (the Issues Paper) on 8 July 2008.  This paper sought the views of submitters on whether the Commission’s preferred option – Locational Rental Allocations (LRAs) – should be further progressed.  The paper described a simple version of  LRAs and provided numerical results for that model.

The Commission held a public briefing on Tuesday 12 August 2008.  The objective of the briefing was to present the information contained within the Issues Paper in advance of respondents finalising their written submissions to the Commission.

• Agenda pdf [30 KB]
• Presentation pdf [446 KB]

Submissions

The Commission received 12 submissions on the Issues Paper on Monday 8 September 2008.

• Submissions received
• Summary of submissions pdf [87 KB]
  

Commission considerations

Since receiving submissions on the Issues Paper the Commission has been considering submissions and additional material.  This additional material has included:

• preliminary cost-benefit analysis of LRAs pdf [203 KB];
• a report on the likely extent of transmission constraints in the future by (Energy Link) pdf [837 KB]
• case studies considering the impact on retail customers and wholesale purchasers of introducing a locational hedge pdf [2301 KB];  
• advice from EGR Consulting pdf [140 KB]; and
• information on the financial flows through the Wholesale spot and ancillary service markets xls [70 KB]
•  a paper on Locational Risk Hedging - Assessment of Options by David McLellan  pdf [1344 KB]
  

This material has been provided here for information.  The cost-benefit analysis of LRAs presented here is preliminary and only considers a simple LRA model. 

Consultation (October 2009)

The Commission has decided that further work on locational hedges should consider both LRAs and FTRs.

These options will be considered in a Consultation Paper which will include cost-benefit analysis of the options against the counterfactual of the status quo. 

A consultation paper was published on 9 October 2009. The closing date for submissions is 5pm on Monday 7 December 2009.

The Commission held a conference to provide an overview of this and other MDP consultation documents and an opportunity for industry participants to discuss the options.

• Presentations