EnergyHedge has diplomatically responded to NZX's contention that signing a deal to develop the local electricity futures and options market with ASX would come at a cost to the country, saying the local exchange's exclusion from the deal was a matter of
EnergyHedge has diplomatically responded to NZX’s contention that signing a deal to develop the local electricity futures and options market with ASX would come at a cost to the country, saying the local exchange’s exclusion from the deal was a matter of timing.
EnergyHedge was established by Contact Energy, Genesis Power, Meridian Energy, Mighty River Power and TrustPower last year to advance the development of the electricity forward market in New Zealand.
Although EnergyHedge was still in discussions with NZX regarding the establishment of an exchange traded and centrally cleared derivatives market in March, but it was revealed today that it had gone with the Australian exchange instead after opening discussions with the ASX about a month ago.
The local market was first informed of the move when NZX released a scathing statement this morning, saying the decision came at “a real cost to a number of sectors” in this country.
In the statement, NZX said an Australian-based market would present “significant barriers” to entry for small entrants who would bring about genuine price competition and was a blow for the development of New Zealand’s capital markets and the “country’s relevance as a financial centre”.
NZX ran into strife with the local electricity industry last year when it tried to claim ownership of the pricing information available through MCo, only to have the suggestion shut down by the Electricity Commission, but EnergyHedge chair John Woods told NBR the decision to go with ASX was not because of any difficulty with the NZX.
“It is mainly a timing issue. The time given to deliver the liquidity demanded under the Ministerial Review is short and the ASX has an existing market and a significant number of high quality clearing participants that the NZX would still take some time to deliver.
“We’re just working with the task we’ve been given. Our underlying objective has always been to get that long-term market in place and ASX offers the best opportunity for that at this point in time.”
NZX is not currently able to offer a clearing house facility, although it is awaiting regulatory approval.
While NZX warned that barriers to small entrants would have an impact on competition, Mr Woods said it all came back to the presence of established participants.
“The fact that ASX has a robust set of clearing participants and financial institutions in place means new participants can be assured they will gain competitive access to the market through those institutions and brokers. The support of these participants and institutions innately drives a degree of competiveness.”
In return, NZX has said it will "assess the potential for launching hedge products specifically designed for small, innovative energy market participants".
EnergyHedge will now step into a more minor role, with its owners now each seeking bi-lateral market making agreements with the ASX.
Under the deal, ASX said it will maintain and further develop a relevant set of electricity future products, including the listing of contracts on the Whakamaru grid reference point and will convene a New Zealand user group to consider product and market development issues, with nomination due by June 15.
The ASX already lists the Otahuhu and Benmore nodes, but trading has been light so far. In its release, NZX helpfully pointed out that there were just eight trades in the first quarter of the year, which all traded in January.
