NZX champions local electricity futures market

NZX, the New Zealand stock exchange operator, says it is best placed to host a local electricity futures market and warns of the pitfalls of foreign ownership.

New Zealand five largest electricity generators are required to establish a new hedge market by the start of June next year including a clearinghouse to act as counterparty for trades.

ASX already offers a New Zealand electricity derivative and "operates the largest clearing house in the Asia Pacific by value of trade," while NZX’s clearing house isn’t complete yet.

“International experience shows that contracts based in the home jurisdiction are better tailored to industry needs, have lower transaction costs and have a wider range of domestically based participants as a result,” said Heather Kirkham, NZX head of strategy.

NZX is preparing to launch a milk powder futures contract in April 2010 and Kirkham says a strong domestic electricity futures market will be “a power complement” for milk powder.

Electricity industry participants told BusinessWire this week that ASX may have the lead-runner advantage as an alternative operator for the new local hedge market. NZX acquired the MCo electricity trading business in April for $13.1 million and now runs the EnergyHedge platform.

Energy Minister Gerry Brownlee’s industry reforms require major generators to offer no less than 3,000 Gigawatt hours of "unmatched open interest" into a new forward market.

ASX established the first New Zealand electricity futures and options products this year. Brownlee is threatening mandatory hedging and other regulation if the latest effort to create wholesale electricity market competition is another failure.

Businesswire