Weldon: EnergyHedge changed the game

NZX thought it was still on track to sign a deal with EnergyHedge as late as last week, but has been left out in the cold after the energy consortium looked across the Tasman.

But NZX chief executive Mark Weldon is adamant that the decision to base New Zealand’s electricity derivatives market in Australia would lead to barriers to genuine price competition.

EnergyHedge announced yesterday that it had signed an agreement with the ASX to further develop the local electricity futures and options market.

The company’s owners - Contact Energy, Genesis Power, Merdian Energy, Mighty River Power and Trustpower – will now each seek to enter bi-lateral market making agreements with the ASX.

Disappointment….

Mr Weldon admitted the NZX was surprised by the announcement, after it had advanced “ a heck of a long way” to meet a series of milestones laid out by EnergyHedge after negotiations were begun in March.

“Maybe they changed the game and just didn’t tell us.”

EnergyHedge chair John Woods said the tight timeline to create liquidity in the market – as required by last year’s ministerial review of the sector – meant the company was better served by going with a more established exchange that had a number of “high quality” clearing participants and financial institutions involved.

But Mr Weldon said few New Zealand institutions were connected to the Sydney Futures Exchange (SPE) platform on which the ASX launched New Zealand electricity derivatives in July last year, creating a significant barrier to entry for smaller innovative entrants.

He said the success of any electricity futures market also depended on local knowledge on everything from local trends to weather and politics, some of which would be lost with the shift across the Tasman.

NZX still has a role in the local electricity market with NZX Energy running the local whoesale electricity spot market and Mr Weldon stressed that dairy derivatives remained the ”main game” and may seen more resources allocated to it after this week’s decision.

….and delight

NZX chair Andrew Harmos told NBR that it was particularly disappointing that the three SOEs who make up part of EnergyHedge had taken their business to Australia, instead of contributing to New Zealand’s advance.

But EnergyHedge’s decision has still been praised in other quarters, with Major Electricity Users’ Group executive director Ralph Matthes describing the deal as “excellent news”

Energy minister Gerry Brownlee also welcomed the new deal, saying it was a “major step” towards providing liquidity in the market.

“There is still some work to be done in getting all five generators acting as market-makers, but EnergyHedge has advised that this is expected to be achieved within the next month of thereabouts.”

NZX shares (NZX:NZX) fell to a low of $1.56 on light trading yesterday, just above the yearly low of $1.55, although it bounced back 2c by the end of the day.