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Enabling investment and innovation

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.

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.

We have decided to allow the urgent Code amendment implemented in September 2024 to provide relief for market-makers during periods of market stress to expire on 12 June 2025. Read decision paper

The Authority intends to undertake a wider review of market making to ensure that the current Code obligations remain fit for purpose.

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.

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