Electronic derivatives platform
We're providing enhanced regulatory support to Aotearoa Energy's electronic derivatives trading platform as part of the Power Innovation Pathway.
Aoteroa Energy
A more efficient, responsive market
Aotearoa Energy is creating an electronic derivatives platform to help manage risk and investment in New Zealand's energy market, which is increasingly reliant on intermittent generation, like wind and solar.
This platform would offer hedging products and a standardised demand flexibility hedge contract to support investment in new technologies and help small market participants access these risk management tools.
Reducing risk, boosting flexibility
New Zealand's electricity derivatives market operates under regulations which require derivative purchasers to phone or email brokers who manually seek counterparties, despite other physical commodities being allowed to be traded electronically. This prevents the opportunity for more effective short-term hedging for intermittent generators, reduces demand response incentives, and creates shorter-term pricing uncertainty.
Aotearoa Energy's 'Prompt Electricity Market' is New Zealand's first electronic platform for short-term electricity derivatives trading that uses digital auction mechanisms to enable immediate execution. The platform allows generators to secure short-term price certainty, enables demand response providers to lock in revenue, and provides intermittent generators with near real-time flexible hedging. It can also rapidly list new products to meet market needs much faster than existing licensed markets.
About Aotearoa Energy
Aotearoa Energy's vision is to create a modern trading platform that brings transparency, efficiency and flexibility to New Zealand's electricity derivatives market. It recognises that without flexible hedging tools, generators struggle to confidently commit capacity, intermittent renewables lack price certainty, and medium to large electricity users can’t monetise demand response.
Power Innovation Pathway support
The Electricity Authority is supporting this initiative to improve market efficiency and enable a more reliable and efficient electricity system for the benefit of consumers.
Providing regulatory support
In 2023, Aotearoa Energy applied for a statutory exemption through the Ministry of Business, Innovation and Employment, but this was not progressed.
The Authority has been advocating for electronic trading, and while we have been providing support, an exemption from the requirement to hold a financial product market license was sought and granted by the Financial Markets Authority.
Informing the Authority’s work programme
Our Wholesale Markets team are observing the 'Prompt Electricity Market' pilot as it supports the trading of standardised flexibility products.
The lessons learned will inform the Authority’s market work to improve access to shaped hedges and strengthen the over-the-counter contracts market, including our approach to regulating standardised super-peak hedge contracts.