8 Sep 2011

Differing views over electricity hedge market

7:01 am on 8 September 2011

Energy market participants are divided about the development of the electricity hedge market, which the Government mandated as part of its plans to promote competition.

The hedge market, which is conducted by Australia's stock exchange, allow participants to buy and sell electricity at a future date to reduce volatility in prices.

But Radio New Zealand's business editor reports some players say it's not working, and they want the regulator to step in.

The Electricity Authority has asked the industry players the development of the hedge market is progressing satisfactorily.

Contact Energy, Meridian Energy, Mighty River Power and Genesis Energy are generally happy with the pace.

They think more time is needed to develop the market, and regulation is unnecessary.

Major Electricity Users Group executive director Ralph Matthes says the reforms are working, albeit slowly.

Generatyion companies are working with the ASX on agreements that reduce the spread between bid and offer prices from 9% to under 5% by next month.

Mr Matthes says a spread of less than 2% is desirable, because it will encourage greater participation from others, like trading banks, which in turn will boost liquidity.

However, some other users are not so patient. Pulse Utilities says the volumes offered are too low and the prices unreasonably high, and the Electricity Authority needs to use its muscle and force the big electricity generators to play ball.

Managing director Dene Biddlecombe says making sure there's enough liquidity is paramount, before rolling out new products like capped prices which allows users to insure against price spikes.