Electricity Articles

Power Privatisation To Go Ahead

The NSW Government has reaffirmed its committment to the sale of the state-owned retailers, development sites and power trading rights with its International Market Testing Update released on 12th May.

The update states that ’…there is more than sufficient interest at this stage to proceed to the next stage of the transaction.’

One of the next steps is that ‘…the Government will call for formal Expressions of Interest in July/August this year.’

Energy Sector Needs Over $97 Billion – ESAA

Yesterday, the Energy Supply Association of Australia (ESAA) released the results of its ‘Global Financial Crisis Survey‘. The key findings were that:

• Over $97 billion is needed to refinance existing generation and network assets and to invest in existing and new assets;
• $29 billion is required for network refinancing alone, and around $17.5 billion of this must occur over the next two years;
• The market for such refinancing has become tight recently with credit spreads widening to up to 350 basis points; and
• Electricity generators estimate they would need to spend another $20 billion in CPRS permits over the next five years.

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For Sale – 7.5 Million Tonnes of CO₂

“NSW workers may find themselves in a situation similar to that of workers in Victoria, where the privatisation of the state’s electricity grid is happening at an alarming rate.”

The above quote appeared in the Australian on the 3rd of May, 1995. The NSW Government is indeed moving at an alarming rate. In only fourteen short years the Government already has a draft plan and a tentative sale date.

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ETEF Deferred Again

On 20 January 2009, the NSW Treasurer Eric Roozendaal and Energy Minister Ian Macdonald announced that the March 2009 roll-off of the Electricity Tariff Equalisation Fund (ETEF) has been deferred until 27 September 2009. This is the second time in six months that ETEF has been deferred.

ETEF commenced operation on 1 January 2001, and its goal is essentially to mitigate the cost to state-owned electricity retailers of having to perform a social duty. Prior to ETEF, NSW had vesting contracts between generators and retailers, which were agreements to supply electricity at a fixed price to ‘non-contestable’ customers who were on a fixed tariff.

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A Few More Thoughts on Appropriate Risk Management Techniques for the Energy Markets

Before starting the discussion on the advantages or disadvantages of various modelling approaches in the Australian electricity market, let’s make a philosophical intermission. What should be the purpose of mathematical modelling? There is another, rather unrelated question to ask: why is there no Nobel Prize in Mathematics when even lifetime enemies may win a Noble Peace Prize?

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A Few Thoughts on the Appropriate Risk Management Techniques for the Energy Markets

It is the Year 2020. Just one week ago Bob Carr Junior abolished the Electricity Tariff Equalisation Fund (ETEF). All technically developed nations (including Zimbabwe and Ukraine) have signed the Basel V International Accord establishing regulatory capital rules for energy producers and traders. Those who do not comply are not allowed to deliver energy to their customers or trade on the spot market and NEMMCO is forced to wipe them out of their dispatch software. (more…)

Weather Derivatives – What are they, where are they traded and how are they priced?

Recently, global financial markets have witnessed a rapid escalation in the popularity and the trading of weather derivatives. These derivatives are predominantly temperature-based but can include derivatives written against other weather phenomena such as precipitation, wind, frost and snowfall.

The weather derivative market in the U.S. has grown from around US$500 million in 1998 to over US$ 12 billion in 2003, and is still growing. Such growth has been attributed to the deregulation of energy markets and the significant effect that weather risk has on the volatility of revenue generated by a large number of companies. Significantly, these companies include electricity generators and retailers. Indeed, the weather derivative market in the U.S. was stimulated by the mild winters of 1997 and 1998, the consequence of the ‘El-Nino’ phenomenon. The associated potential for corporate earnings decline signalled the need for a hedge against abnormal weather behaviour.

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