Trading and open interest update

As part of its monitoring activity and policy development process, the Authority periodically reviews the effectiveness of its policy interventions.

In early 2020, the Authority increased the volume of contracts market made and reduced the spread between market makers bids and offers. In the following two years, the electricity futures market has seen an increase in the level of trading activity and open interest. This indicates that the changes made in the long-term interest of consumers has been effective.

Electricity is bought and sold on the wholesale electricity market and one component of the market is the electricity futures market. The futures market, which is traded on the Australian Securities Exchange (ASX) platform, is one way that electricity market participants can insure against spot price volatility. Participants buy and sell financial instruments whose prices are based on expectations about the spot market and its underlying conditions.

Since New Zealand electricity futures were first listed on the ASX in 2009 the Authority has consistently worked to encourage the development of exchange-traded products. Recently, the Authority undertook a number of actions to enhance the development of the futures market, with specific attention given to market making on the ASX platform. Early in 2020, the Authority introduced an urgent Code amendment to place a mandatory backstop to the then voluntary market making activities by four integrated generator retailers, with enhanced levels of service by market makers (tighter spreads between bids and offers as well as increases in available volumes). This mandatory backstop was made permanent in April 2021.

Trading activity in ASX futures products has, over the past two years, increased significantly. Trading in the period of late 2016 to 2019 was often in the range of 2,000 GWh per month. Now, in 2020 and 2021, futures trading has increased to a range between 4,000 GWh to over 8,000 GWh per month. For context, this is about twice as much electricity as is actually consumed each month in New Zealand.