Launch of FTRs brings fresh tool to electricity market

Media release

11 June 2013

Launch of FTRs brings in fresh tool to promote electricity market competition

A new era in electricity market competition starts on 12 June 2013 with New Zealand’s first auction of financial transmission rights (FTRs).

The Electricity Authority is introducing FTRs to promote competition in the retail market for the long-term benefit of consumers. FTRs are designed to assist electricity companies to manage the risk of large unpredictable electricity price movements on the wholesale electricity market.

“FTRs are designed ultimately to benefit electricity consumers. Once the FTR market is up and running, electricity consumers should see more competitive retail offers from a wider number of retailers and greater competitive pressure on prices throughout the country,” said Electricity Authority Chief Executive Carl Hansen.

The FTRs will be auctioned by Transpower’s Energy Market Services (EMS), the Electricity Authority-appointed FTR manager. EMS started the FTR market system on 23 May and has been signing up participants for the first auction in June.

About eight companies are expected to line up on auction day to bid for the opportunity to hold FTRs. Each FTR, measured in mega-watts, will cover the price difference between Otahuhu in Auckland and Benmore in the South Island over one calendar month. The first month to be auctioned will be July 2013. Results will be available the day after the auction on the public register of FTR holdings, available at http://ftr.co.nz.

Over the coming months, FTRs covering more distant future months will be progressively auctioned until the market has 24 months of forward-looking FTRs at any one time. This will provide companies with up to two years of hedges against the risk of price differences between Benmore and Otahuhu.

Director of Transpower’s EMS, Kevin Duckworth said that the project has been a success and benefited from the strong working relationship with the Electricity Authority and positive engagement with industry participants.

“We are pleased that EMS has been able to bring another key service to the market,” he said.
The Energy Clearing House, a business unit of NZX, as the clearing manager for the wholesale electricity market, will also play a key role in FTRs. The clearing manager will manage prudential requirements for participants and will invoice FTRs alongside the wholesale market.

As stated above, these initial FTRs cover the price risk between Benmore and Otahuhu. The Authority will shortly be releasing a consultation paper that proposes to extend FTR trading to several more locations, to provide further options for retailers to manage their risks and thereby further enhance retail market competition.

Background

The FTR market is the result of several years’ consultation with industry and has been introduced after Electricity Industry Participation Code amendments were made by the Authority to address market problems identified in the Electricity Industry Act 2010.

The FTR initiative builds on the overall reforms in the electricity sector, particularly the generation asset swaps, the What’s my number campaign, the review of prudential arrangements, and developments in the ASX electricity futures market. Collectively, these measures enhance retail market competition for the long-term benefit of consumers.

Transpower’s EMS is using an auction system called i-Hedge, developed by San Francisco-based grid software company Nexant, to control and administer the FTR market. The Nexant system is already in use in seven FTR markets in the US. FTRs are a standard product in most electricity markets with nodal pricing.

ENDS

© Scoop Media