5 Jun 2010

NZ electricity futures market on ASX lamented

8:25 am on 5 June 2010

NZX says a decision by major electricity generation companies to use the ASX in Australia to provide a electricity futures market is bad for the development of capital markets in New Zealand.

A futures market, which is part of the Government's reforms to promote competition in the industry, allows the buying and selling of electricity at a future date, which should give greater certainty and reduce price volatility.

The NZX was in talks with EnergyHedge, which represents the major generators, but the group has announced an agreement with the ASX.

NZX managing director Mark Weldon says that that's a wasted opportunity for New Zealand, and that it's weird the energy hedge will not be in New Zealand.

Mr Weldon says all companies in New Zealand have good access to the NZX, but it's much more difficult to access to the Australian exchange.

EnergyHedge chairman John Woods says the group went with the ASX because it already had the systems in place, meaning a quicker set-up process.

Energy Minister Gerry Brownlee supports the move, saying the Government will review the hedge market in a year to make sure it has sufficient liquidity.

Small companies expectant

Independent power companies say they hope a new electricity market will help them compete with big players.

Simply Energy is a small company looking at hydro, landfill gas, coal seam gas and wind projects.

Director Murray Dyer hopes the new market will make it easier to raise finance for these projects, because selling futures in electricity will mean banks know exactly how much money they will earn when they are built.

At present, he says, banks are reluctant to lend on new power schemes because of the uncertainty involved.