Transitioning To A Commercial Approach The Way Forward For Market Making

The Electricity Authority has decided to build on the current market making arrangements on the electricity futures market by transitioning to an incentivised market making approach with commercial providers.

James Stevenson-Wallace, Chief Executive of the Electricity Authority says, “We want to give certainty to participants and consumers – that’s why we are mandating existing market makers to continue to provide services while the Authority transitions to an incentivised approach with commercial providers of market making services.”

“The Authority’s priority is to ensure market making services support the forward price curve, which gives an indication of the future price of electricity. A robust forward price curve benefits all participants, and allows effective decision making by both market and non-market participants. Consumers benefit as organisations can better manage their risks and secure more efficient prices.”

The Authority will closely manage the transition, which could take several years, to ensure market making services continue and to protect the forward price curve. The existing market makers Meridian, Mercury, Contact and Genesis will be mandated to provide services through the Code, while the Authority procures at least one additional commercial provider.

“This approach builds on the success of the current arrangements, particularly through recent market stress events in 2020. This year the ASX electricity futures market has seen record volumes traded.”

Interested parties will have the opportunity to provide feedback on the approach, including likely beneficiaries of market making, and how the cost of a commercial scheme would be recovered from them. The Authority will release a decision paper with full details later this year.

The decision on an enduring market making approach is responsive to the views of the Electricity Price Review Panel and the Government’s response.

The Authority’s market making project is part of a wider suite of work that promotes wholesale market competition, along with its review of wholesale market information disclosure, work on the profitability of the retail arms of the generator-retailers, and the revision of the trading conduct rules being led by the Authority’s Market Development Advisory Group. Collectively this work will help parties be increasingly confident in wholesale market competition, the efficiency of prices and the forward price curve.

More information is available on the Authority’s website.

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