Regulate To Create A Liquid Hedge Market – Meridian
September 23rd, 2009
Meridian Energy proposes the Govt require all electricity generators to bid a fixed proportion of their available generation into an electricity futures market to improve security of supply and hedging arrangements, both of which were found wanting by the Ministerial review. This may be a lower cost route to achieve the desired outcome than swapping hydro and wind assets for thermal assets belonging to Genesis Energy, as the review proposed. “Meridian has considered the proposed asset swap and while it may achieve those objectives, we are concerned that the costs to NZ, once fully assessed, may outweigh the benefits that can be achieved,” it says on the first page of its 51 page submission.
Under a liquid hedge market regime, Meridian says generators “would be required to place a certain proportion of their generation through an approved electricity futures trading exchange, ensuring liquidity. This will then give prospective retailers (and generators) access to energy and a reliable mechanism to manage their price risks.” Brownlee said at the time of the review’s release the Govt would take some convincing an asset swap was a good idea, but the Major Electricity Users Group has come out strongly favouring a physical asset reallocation, arguing this will be a more powerful way to change power company behaviour than better hedge market arrangements.
Meridian’s submission also points out an intriguing and little-known fact: that when Contact Energy’s Ahuroa gas storage facility is completed, there will be more thermal energy storage in NZ than there is hydro. Meridian says “modifications to the security of supply arrangements moving forward should acknowledge this.”
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