The majority of direct and indirect participants in the electricity market, from generators and retailers through to large consumers, aren’t aware that there is an essential piece of market intelligence available free on this very web site. And this month we publish it for the 100th time.
By Greg Sise, 19 July 2017
I refer to the Energy Link Fixed Price Electricity Contract indices, of which there are three: the main index which includes large, longer term FPVV and CFD contracts; the CFD index and the FPVV index.
This week we published issue number 100! The index was first calculated by us in February 2009 and this is the 100th month in a row we have dutifully and carefully calculated and published it.
FPVV stands for fixed price variable volume and is the type of contract which the vast majority of consumers, large and small, have with their electricity retailer(s). FPVV contracts bundle physical supply of electricity and price certainty into one neat supply contract.
CFD stands for ‘contract for differences’ or more correctly, contract for difference payments. A CFD is a type of financial contract which protects a party buying or selling electricity at spot prices from the volatility inherent in these spot prices. Parties that enter into CFD contracts almost always buy their electricity supply, or sell electricity generation, at spot prices under contracts which are separate to the CFD. They can enter into one or more CFDs which pay amounts proportional to the differences between the spot price in any particular period and an agreed “strike price”, and the difference payments offset movements in the spot prices, thus smoothing out the volatility of the spot market.
Under the electricity Code, data on large FPVV and CFD contracts must be disclosed and each month we collect this data and aggregate the data into the three indices. (None of this data includes line charges – it is just for energy.)
And the indices are incredibly useful, though most people in and around the industry don't know they exist.
Suppose, for example, you are a large electricity consumer looking to buy electricity on a fixed term contract. Then the relevant index tells you at a glance what the current average market price is and how much variation there is in the prices of contracts traded in the last few weeks or months. That’s very useful information.
Now, it’s also true that there is a market for electricity futures contracts, the prices of which are available on the ASX web site and which also provide an indication of contract prices. However, the futures prices have different dynamics to the Energy Link indices, so are not always directly applicable to FPVV and CFD contracts.
The indices are all referenced to the Haywards grid node in Upper Hutt, but we publish the main index value in Auckland and in the South Island and we can provide rough indications at other locations on request.