News: Blog

Everyone is wondering why spot and futures prices are so high at the moment. There is more than one extraordinary factor involved here, including fall-out from the war in the Ukraine to large a degree, but today we look at one that can be easy to miss.

The CFD index pushed up again this month, toward the ASX three-year average, but the FPVV index went down slightly on a greater volume (relative to CFDs). So overall, the main index rose by 1.8% to 11.3 c/kWh.

As we make the transition to net-zero carbon, it’s always interesting see forecasts of emissions in the future. Every time we run our quarterly long-term forecast, the ‘Price Path’, we get updated forecasts of how emissions might change in the electricity sector.

 2021 finished with a flourish, with 24 contracts qualifying for inclusion in the index and a total volume of 2,471 GWh, the second highest volume since mid-2018. This may reflect pent-up demand for contracts after a long period of high prices, with buyers taking the opportunity to lock in prices while the spot market was relatively settled in the lead-up to the summer holidays. 

CFD index went down, FPVV index went up, so no change to the overall index this month, which stayed at 11.1 c/kWh ($111/MWh)

The main index rose this month as buyng pressure came back into the futures market. Three large CFDs are excluded from the indexes because they are ten years in length or more, and therefore are exempt from price disclosure under the Electricity Industry Participation Code.

A new hedge contract started trading in September 2020. It’s a cap product with strike price of $300/MWh. Over 320 of these contracts traded so far, but we still don’t know who is selling them.

This week Greg Sise provides a summary of his presentation on the problem of price formation with 100% renewable electricity, which he presented at the the Electricity Authority’s Market Development Advisory Group (MDAG) recently.

Forecasts of spot prices are an important tool in the hedging toolkit, and this post provides an overview of the role of forecasts in hedging.

The blackout event of Monday 9th August caused a huge amount of negative publicity for the electricity market, but let’s take a closer look at some interesting aspects of this event.

The Gas Industry Company (GIC) recently released a consultation paper on gas market settings and whether these are fit for the purpose of helping New Zealand through the transition to low-carbon energy. Somewhat belatedly, here are my thoughts.

There were only 3 contracts traded that were eligible to include in the index calculations this month, following the trend in April of low volumes of trading.

“Are there any risks in using CFDs to hedge wholesale electricity prices?”    

In New Zealand the contract-for-differences (aka CFD) is the most common off-exchange method for hedging the price of electricity traded on the wholesale market for a specified quantity and time period. In other words, the CFD is a fundamental tool in the hedging toolbox.

There were 8 contracts traded that were eligible to include in the index calculations this month, but the last of these was on the 6th April, and since then nothing has traded in the OTC market (or at least not that meets the index criteria for size and duration).

 This blog post follows on from Hedging Fundamentals Part 1 and answers "Why are spot prices in the NZ wholesale electricity market so volatile?"

There were no FPVV contracts traded over the last month, so the FPVV index goes sideways this month, i.e. it defaults to last month's value of 10.2 c/kWh. Strong CFD growth has brought the main index up to 12 c/kWh. 

If you have some small-scale generation, how do you sell its generation output? This post briefly describes some common scenarios.

We now know that the Tiwai smelter is likely to be around for another four years to December 2024; but prior to 14th January we didn’t know this. What do futures prices tell us about futures traders’ views of the probability of Tiwai staying longer than August 2021?