The AEMC has published a draft determination on a proposal to introduce a market for short term financial derivatives to enable participants to contract for electricity in the week leading up to dispatch.

The Commission has decided not to make a draft rule as there is very limited demand by industry for a short term forward market. 

We have consulted extensively with energy market participants – in particular renewable energy businesses, gas peaking generation businesses and demand response providers – to find out if allowing them to trade electricity contracts closer to real time could provide greater price certainty and more options to manage financial risks.

Our analysis and stakeholder feedback found there is very limited commercial demand for additional short term financial hedging products. Market participants currently manage their risks using a range of ASX products, brokers or bilateral trades. In addition, the market is willing and able to develop new hedging products in response to demand. Brokers and exchanges have significant expertise in developing and selling these types of financial products.

We also considered whether a short term forward market could help improve reliability or security. However, the short term nature of the contracts would be unlikely to incentivise longer term decisions to invest in new generation or demand response services, meaning there would be minimal impact on reliability. Also, due to the voluntary participation in the market and limited visibility of the exact generating unit used to defend the financial contract, a short term forward market could not be relied upon to materially improve system security. 

Instead, reforms to bring the national electricity market closer to a two-sided market have the potential to improve the accessibility of demand response and hence reliability and security, at a lower cost. 

We are working with the Energy Security Board, AEMO and the AER to develop a high-level design for a two-sided and ahead marketplace, to be delivered to the COAG Energy Council in March 2020 as a priority. A move towards a two sided market that actively engages load may require some form of ahead feature and this will be considered as part of this work. 

Submissions on the draft determination are due by 6 February 2020.

Media: Kellie Bisset, 0438 490 041 or (02) 8296 7813