Business reluctant to join secondary power market

By STAFF REPORTERS

The Government’s secondary market for electricity — designed to provide solace for businesses stung by soaring energy bills — is still waiting for its first customer, more than a week after opening.

Energy Minister Pete Hodgson says the first customer is not expected until next week.

Some power companies have reservations about how popular the secondary market will be, as it depends on big power users taking more risks on the spot market.

But the Government has high hopes for the new online market, run by energyauctions, a joint venture between an Australian online auction company and d-Cypha, a subsidiary of state-owned grid operator Transpower.

The joint venture has also been operating a secondary auction market, but power retailers have not been interested in offering hedge contracts.

Here’s how the secondary market works — once the customers turn up:

* Customers making energy savings offer a contract on the savings, using their power retailer as an agent.

* Companies or institutions forced to pay high spot prices bid for that contract on the website.

* The highest bidder at the end of the auction wins the contract.

D-Cypha business development manager Chris Lee expects bigger companies to sell electricity saved to smaller companies.

No electricity will be physically transported. Instead, a buyer on the market will enter a financial relationship with the power retailer selling the electricity on behalf of a customer.

The market’s backers say companies or institutions that spend at least $6000 a month on electricity are the most likely to sell their savings on the new market.

D-Cypha hopes organisations forced onto the spot market in recent weeks will go to the auction site and register interest.

Transpower sales and marketing manager Bill Heaps says New Zealand is the first country in the world to offer such a market.

Contact Energy spokesman Pattrick Smellie says his company, which has around 22 per cent of the retail market, welcomes anything that gave customers more choice.

“If they want it, we’ll be in to it.”

The secondary market is needed because although the overall market is working well — in the sense that wholesale prices have gone up when supply is reduced by the low hydro lakes — there has still not been enough incentive for customers to save electricity, other than the prospect of cheaper bills.

Business New Zealand chief executive Simon Carlaw sees the secondary market adding a “different order of sophistication” to the overall wholesale market and believes it may improve it.

“There may be something out of the lessons of the past few weeks that could be tagged on to that as well.”

The Government acknowledges an effective secondary market is crucial to the proper workings of the wholesale market. It remains to be seen if its “Build it and they will come” approach pays off.

Power to the People Supplement