New Risk Management Contracts Improve Market Design

The Electricity Retailers’ Association of New Zealand (ERANZ) welcomes today’s launch of a new standardised super-peak hedge contract to be auctioned and brokered by Aotearoa Energy.

A standardised super-peak hedge contract is a risk management tool for wholesale electricity buyers. It acts as an insurance policy against higher wholesale electricity prices during peak demand periods when weather-dependent generation may be low. These contracts will become even more important as market volatility increases with the embracing of more intermittent renewable energy sources.

ERANZ Chief Executive Bridget Abernethy says the new contracts enable wholesale market participants to better manage higher prices when hydro, solar and wind generation may not be able to meet demand.

“All electricity market participants in New Zealand know our wholesale electricity market is volatile due to our dependence on intermittent renewables, and this product could be very useful for consumers who don’t have load flexibility or have very lumpy consumption patterns.

“We’re pleased to see the joint Electricity Authority-Commerce Commission Competition Taskforce launch this new product and look forward to this first trading event following extensive engagement with an industry-led representative panel.”

Abernethy supports the implementation of the new product and says ERANZ looks forward to the market's development of more liquidity, which will provide generators and large consumers with another way of managing the risk in their energy portfolios.

“The Government’s recent Policy Statement on Electricity outlines an expectation that wholesale buyers and sellers have well-suited risk management arrangements in place.

“By introducing standardised flexibility products, participants will have far greater transparency around future electricity prices, supporting better risk management and investment decisions.”

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