Stock exchange operator NZX has hit out at moves by five major power generators to sign a contract with the Australian Securities Exchange to undertake derivative market trading activities in this country.
NZX today said it had been informed by state owned enterprises Meridian, Mighty River Power and Genesis, and by Contact Energy and Trustpower that, together as EnergyHedge, they had decided to sign the contract.
In March NZX had said that, at that time, it was in discussions with EnergyHedge regarding the establishment of an exchange traded and centrally cleared electricity derivatives market in New Zealand.
Also in March NZX published a product roadmap which showed phase 1 of its electricity derivatives plans launching about now, depending on a platform provider decision by existing electricity market participants.
Derivatives are financial instruments that derive their value from an underlying asset. They provide users with risk management tools by locking in forward prices or hedging exposure to changes in the price of the underlying asset. They are also seen as providing price transparency.
Today NZX said it respected the right of the generators to make a decision they considered to be in their own best interests, but it believed the decision came at a cost to sectors in New Zealand.
"An Australian-based market will present significant barriers to entry for the type of small, innovative entrant who could bring about genuine price competition in the New Zealand electricity market," NZX said.
"This will in turn limit the benefits for New Zealand electricity users: households and industry."
The decision was also a blow for the development of New Zealand's capital markets and this country's relevance as a financial centre, which was built "one product and one institution at a time".
NZX said it had the market infrastructure in place, and was waiting for regulatory approval to launch a clearing house.
A fortnight ago NZX announced the commodities advisory and trading firm FCStone had started a process for a subsidiary to become a general clearing participant for the NZX derivatives market.
General clearing participants provide the link from customer to clearing house, settling and clearing trades on behalf of all trading participant clients.
While FCStone focused its comments on a derivatives marketplace for the dairy industry, it also said it looked forward to using its expertise in currencies, electrical power and other commodities where there was a need for risk management.
Today, NZX said it would consider its options, ensure its platforms were available should they be needed, and assess the potential for launching hedge products specifically designed for small, innovative energy market participants.
NZX said its NZX Energy business was the central provider of infrastructure, information and rule development for the New Zealand electricity market.
NZX Energy ran the infrastructure on which the national energy market operated, and had connectivity to all market participants. It ran the New Zealand wholesale electricity spot market, and was also the pricing manager, clearing manager, and reconciliation manager.
NZPA