The Electricity Authority issued a consultation paper on hedge market enhancements market making to ensure market making arrangements are fit for purpose over time.

In the consultation the Authority outlined a number of approaches and evaluated the models against trade-off criteria and sought industry feedback.

The Association in its submission noted that it considers the most efficient hedge market arrangement is one driven by commercial incentives which would include payment to market makers for services that reflects the cost and benefits of market making.

NZWEA supported the commercial option identified for market making but with a mandatory backstop arrangement also being defined to incentivise the achievement of a commercial arrangement.

The Association also reiterated the importance of continuing to enhance the hedge market by extending the duration and introducing new products such as a cap offering.

The Association’s submission can be viewed here:

The Electricity Authority also issued a discussion paper on hedge market enhancements in November 2019 seeking submissions noting there would be a follow up consultation in early 2020 on options for market making arrangements.

The consultation was as a result of  the Electricity Price Review (EPR) Panel’s recommendation that the Authority should impose a ‘mandatory market-making obligation on vertically integrated generator-retailer companies unless a better solution can be found (potentially an incentive-based scheme funded largely by the vertically integrated companies)’. The Minister of Energy and Resources has confirmed this to be a high priority for the Government.

The consultation sought feedback on the Authority’s initial analysis of problems and opportunities.  Issues identified include:

• Market making fragility.
• Bid-ask spreads include factors beyond market certainty.
• Liquidity is not consistently defined.

The Association in its submission to the EPR, in relation to reinforcing wholesale market competition, focused on two key aspects specific to wind farm development and in particular supporting independent generators rather than managing shorter term trading positions which has been the most consistent sources of market criticism.

The Association in its submission to the Electricity Authority focused on the feedback provided to the EPR:

• Current market term should be extended from 3 to a minimum of 5 years to provide a higher level of contract cover for new investment.
• The need for product innovation such as an electricity price cap product which may better enable independent retailers to contract variable wind farm output.
• The RTP project seeks to transition the electricity system to publish final prices for the wholesale spot market in real-time.

The Association’s submission can be viewed here: