News: Gas market, Hedging

The main index fell by 7.6% this month, mainly the result of a fall in the FPVV sub-index. This month the data showed six new long-term contracts of ten year terms, following on from the three that appeared last month.

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.

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.

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

The gas market is opaque relative to the electricity market, but recent major gas field outages have prompted moves to improve transparency.  One of the first improvements is an initiative by the gas industry regulator, the Gas Industry Company, which

This is the second in a series of three posts on what I see as the most important issues for the electricity market for the 2020s.  The first issue was disclosure in the gas market, which has as much impact on electricity as it has on gas, and is woefully inadequate.  The second issue, and the topic of this post, is the electricity hedge market:  how it is not working for new retail

It’s ironic that this month’s announcement that there will be no new offshore oil and gas exploration permits issued in New Zealand was titled “Planning for the future…”. This announcement was totally out of the blue and if there is a “plan” somewhere, it appears that no one outside of government knows what it is.

What drives electricity prices? Demand? Fuel costs? Losses? Transmission constraints? Carbon costs? The cost of new generation? Inflows? Well they all have an impact to a certain degree. The time frames vary but the answer in the long run is surprising, especially given that we are currently running at over 80% renewable generation.

The 10th annual Symposium of the Otago Energy Research Centre (OERC) was held in Dunedin on 10th and 11th November. I presented at the conference, and Fergus Bevin-McCrimmon gave a presentation of the results of his research on the efficiency of electricity futures markets. Energy Link was very pleased to sponsor the prize for the best student presentation, won by PhD candidate Paul Crane for his presentation titled “Helping Support Energy Management Systems at the University of Otago”.

This is the third and final post in a series which draws on research undertaken in collaboration with the Department of Accountancy and Finance at the University of Otago.  In the first post, we looked at evidence for premia in electricity futures prices.  In the second post we found some surprising drivers of premia observed in futures prices.  In this post we look at liquidity in the futures market, how it has evolved, and what developments or events caused it to change.