Our projects
Risk management through the transition

Commercial market making

Our work on commercial market making is a key part of our work on developing hedge markets. Hedge markets is an umbrella term for all the markets that industry participants use to manage risks.

  • Wholesale

    • Overview

    Commercial market making is a workstream that uses a paid provider to make the electricity futures market more efficient.

    The exchange traded New Zealand electricity futures market performs two key functions:

    • electricity market participants use it directly and indirectly to manage their spot price risk, and
    • participants and other interested parties use the forward price curve the futures market creates to inform a wide range of investment and operational decisions.

    These market functions promote the long-term interests of consumers by enabling efficient decisions and fostering competition and transparency.

    Between February and March 2022, the Electricity Authority consulted on amendments to the Electricity Industry Participation Code 2010 (Code) which set out new service level parameters for regulated market making. We would like to thank all those who made a submission.

    In July 2022, after considering each submission, we decided to proceed with our proposal to amend the Code to introduce a commercial market maker. Read our Code amendment decision paper.

    Timeline

    Past activity

    Project background

    One of the outcomes of a 2010 Ministerial Review was that the Minister of Energy and Resources requested the five major generators to develop an active market for exchange-traded electricity contracts.

    The Electricity Authority undertook work to review and evaluate the progress made in the development of an active market for trading electricity hedge contracts. We then introduced changes to address the shortcomings identified.

    Developing and strengthening the electricity hedge market is an important project. The objective is to provide more transparent and robust forward price signals, and an electricity market that is more competitive, being readily accessible for existing participants and purchasers, as well as for new entrant generators and retailers.

    We are encouraging the development of trading in New Zealand electricity futures and options on the Australian Securities Exchange and pursuing several other initiatives designed to support the development of a more robust and transparent hedge market.

    Correspondence

    When appropriate, we engage with electricity industry participants to address claims relevant to commercial market making and poor performance of market making services. We are committed to transparency and publish these letters here.

    Contact

    If you would like further information on this project or pre-2020 reports, please contact info@ea.govt.nz.

    Other projects in Risk management through the transition
    View all projects

    Financial transmission rights

    Helping industry participants manage locational price risk to enable greater competition in the wholesale and retail markets.

    View project

    Over-the-counter market

    Improving the operation and efficiency of the over-the-counter market.

    View project

    Pricing in a renewables-based electricity system

    How price discovery would work for the wholesale electricity market under a renewables-based electricity system.

    View project