ANZ Bank is planning to enter the as yet underdeveloped electricity hedges market, a move that may boost the effectiveness of the market in enabling large power consumers to manage volatility in their energy costs.
Hedges are tradeable instruments that entitle the holder to consume a quantity of
electricity in a given period for a given price.
They can give large electricity users certainty over the price they pay for energy by reducing exposure to volatile spot market prices.
There is already a trading platform for standardised electricity hedge contracts called EnergyHedge but at present the only participants are the large generators, Contact, Genesis, Meridian, Mighty River and TrustPower.
Large electricity users, who generally only want to bid for power, are all but excluded from the market by the requirement that participants post both offers and bids for any contract.
ANZ market development manager Simon Neal said there were relatively few deals actually done at present through EnergyHedge itself, but many were done directly between the generators and users using the market's price information or the "forward curve".
However, ANZ planned to become an EnergyHedge participant next month and then offer clients such as industrial users, farmer groups and other large consumers products derived from the market.
"We're hoping to get out there and be an alternative provider of energy derivatives to customers from the existing core five generator retailers effectively," said Neal.
He said the bank was well placed to act as an intermediary between clients and EnergyHedge.
"We as a bank have a strong background in trading, we know and understand risk very well and know and understand credit very well."
Ralph Matthes, executive director of the Major Electricity Users Group, welcomed the ANZ's plans. "I think it's something to be encouraged."
Room to develop
*ANZ will become a participant in the EnergyHedge market next month.
* The bank plans to offer clients products derived from its EnergyHedge involvement that will help them manage electricity price risks.
* It is hoped other banks will follow suit, adding further liquidity to the relatively underdeveloped market.
* ANZ is set to enter the electricity futures market.
