Introduction to the Australian Electricity Market. April 2014

Transcription

1 Introduction to the Australian Electricity Market April 2014

2 Disclaimer: This is for general information purposes only, does not constitute financial product advice and is provided on a non-reliance basis. By accepting and retaining this information, the recipient represents that the recipient is a wholesale client. Futures and options trading involve the potential for both profits and losses and only licensed persons can advise on this risk. You should obtain independent professional advice in assessing the effect of the information on your circumstances and before making any financial decisions. ASX Energy Limited does not give any warranty or representation as to the accuracy, reliability or completeness of the information. To the maximum extent permitted by law, ASX Energy and its related bodies corporate and their employees, officers and contractors shall not be liable for any loss or damage arising in any way (including by way of negligence or otherwise) from or in connection with any information provided or omitted or from any one acting or refraining to act in reliance on this information. The information does not take into account your objectives, financial situation or needs. A recipient of the information should make their own independent assessment of the matters in this information, after making such investigations as they deem necessary. A recipient must rely on their own representatives and advisers in relation to this information. ASX Energy Limited, ABN , is a New Zealand registered company and holds an Australian Financial Services Licence (no ). ASX Energy Limited is a related entity of ASX Limited. Copyright 2014 ASX Operations Pty Limited ABN All rights reserved 2014.

3 Presentation Topics 1. Introduction to the $16 billion electricity Futures Market 2. ASX futures cash-settle to the Pool Market Price 3. ASX Futures Liquidity Statistics 4. Unique Commodity Market alpha 5. Unique Arbitrage and Emerging Market returns 3

4 Australian Electricity Futures Market Cash Settled & Centrally Cleared Commodity Options liquidity 65% of power consumption Australian Electricity ASX Cal % of power consumption 333 TWh p.a. Over $16 billion face value p.a. Source: ASX 4

5 The Electricity Market Pool Price ASX Futures for each region are cash settled against the electricity Pool Price average The Australian National Electricity Market (NEM) is an interconnected grid including NSW, VIC, QLD, SA and TAS. The Australian Energy Market Operator (AEMO) is the pool market operator (ISO). AEMO publishes a half-hourly electricity pool price for each region. All hedging by energy companies must be done via cash settled derivatives (such as futures). No electricity derivatives involve physical delivery of energy. In each region: Retailers purchase power from AEMO at the common pool clearing price. Generators sell power to AEMO at the common pool clearing price. The AEMO spot pool price varies from -$1,000/MWh to +$13,100/MWh. SA QLD NSW VIC TAS 5

6 The Physical Flow of Electricity Bought and Sold from the Pool Market Physical Power Supply The pool price is calculated by AEMO and changes every half hour (ranges between -$1,000 to +$13,100)/MWh. Retailer AEMO $ Spot Power $ Market Operator Generators All retailers pay the variable pool price to AEMO. All generators receive the variable pool price from AEMO. $ Electricity Consumer Consumers typically pay their retailer a fixed rate (including retailer s profit margin), in return for power supply. 6

7 Fuel Stack and Fuel Output in the NEM Capacity by Fuel Output by Fuel Black coal 40.62% Brown coal 14.50% Gas 20.06% Hydro 16.47% Wind 5.35% Liquid 1.64% Other 1.35% Black coal 51.55% Brown coal 23.70% Gas 12.21% Hydro 8.97% Wind 3.35% Liquid 0.03% Other 0.19% Source: Australian Energy Regulator,

8 Free Real Time Spot Market Information 2-day ahead price and demand forecast charts: 7-day forecast of the Scheduled Reserve : Medium term outlook forecast charts (up to 2 years): AEMO free real time low reserve alerts: Free online government weather service: Free Daily Spot/Physical Market Report Summary: 8

9 ALPHA from Australian power prices Fundamental Drivers of electricity prices Weather Temperature, Wind, Lightning, Rainfall, Flooding, Drought, Bushfire Australian Electricity Prices Generation & Transmission outages Fuel Costs Coal, Natural Gas/LNG, C02 9

10 Australian Electricity Product Suite and other Products 1. Australian Electricity Products: Base Load Quarter Futures Peak Load Quarter Futures Base Load Quarter $300 Cap Futures Base Load Calendar Year Strip Options Base Load Financial Year Strip Options Base Load Month Futures Base Load Quarter Average Rate Options 2. Australian REC Futures 3. Victorian Natural Gas Futures 4. New Zealand Electricity Futures and Options 10

11 The Electricity Futures Market UNDERLYING COMMODITY Contract Quarters The Cash Settlement Price Trading Hours Base Load Contract Unit Peak Load Contract Unit ELECTRICAL ENERGY BOUGHT AND SOLD IN THE NSW, VIC, SA AND QLD WHOLESALE POOL MARKETS CONDUCTED BY AEMO. March (H), June (M), September (U) and December (Z). Individual month contracts also available The arithmetic average of the NEM final base load half hour spot prices during the Contract Quarter, rounded to two decimal places. A Provisional Cash Settlement Price will be declared on the first Business Day after expiry of the Contract and shall be later confirmed on the third Business Day after expiry. 9:00am 4:00pm, Sydney time Block Trade Agreement permissible at any time other than the preopen period (8:50am 9:00am on exchange business days). 1 Megawatt of electrical energy per hour based on a base load profile. Where the base load profile is defined as the NEM base load period from 00:00 hours Monday to 24:00 hours Sunday (AEST) over the duration of the Contract Quarter. The size (in Megawatt hours) of each Contract Quarter will vary depending on the number of days and base load hours within the quarter. 1 Megawatt of electrical energy per hour based on a peak load profile. Where the peak load profile is defined as the NEM peak load from 07:00 hours to 22:00 hours (AEST) Monday to Friday (excluding Public holidays, as determined and published by ASX 24) over the duration of the Contract Quarter. 11

12 The Financial Electricity Market The Basics Australian ASX Electricity Future & Options Codes FUTURES Base Monthly EN = NSW Base Load EV = VIC Base Load EQ = QLD Base Load ES = SA Base Load Base Quarterly BN = NSW Base Load BV = VIC Base Load BQ = QLD Base Load BS = SA Base Load Peak Quarterly PN = NSW Peak Load PV = VIC Peak Load PQ = QLD Peak Load PS = SA Peak Load Base Calendar/Financial Year Strip HN = NSW Base Load HV = VIC Base Load HQ = QLD Base Load HS = SA Base Load Peak Calendar/Financial Year Strip DN = NSW Peak Load DV = VIC Peak Load DQ = QLD Peak Load DS = SA Peak Load Base Calendar/Financial Year $300 Cap Strip RN = NSW Base Load $300 Cap Strip RV = VIC Base Load $300 Cap Strip RQ = QLD Base Load $300 Cap Strip RS = SA Base Load $300 Cap Strip OPTIONS Base Quarterly Average Rate Options (European, Cash settled) BN = NSW Base Load BV = VIC Base Load BQ = QLD Base Load BS = SA Base Load Base Calendar/Financial Strip Options (American, Exercise into Base Futures) HN = NSW Base Load HV = VIC Base Load HQ = QLD Base Load HS = SA Base Load Base Quarterly $300 Cap GN = NSW Base Load $300 Cap GV = QLD Base Load $300 Cap GQ = VIC Base Load $300 Cap GS = SA Base Load $300 Cap 12

13 Australia Power Price Drivers = alpha 10 Years of Futures Price history (1 year rolling) NSW Base Cal Settlement Prices for 3 Jan 2006 to 31 Dec 2013 $/MWh Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Source: ASX 13

14 Electricity Liquidity: ASX Futures vs. Over the Counter Electricity Derivatives Traded Volume OTC ASX 24 centrally cleared Underlying Electricity Consumption Million MWh OTC ASX 24 centrally cleared Underlying Electricity Consumption Sources: AFMA; ASX 2003/ / / / / / / / / /

15 ASX Liquidity by Region: Compared to pool market, CY13 Exchange Traded Volume as a % of Underlying Physical Demand (Calendar 2013) 140,000, ,000, ,000, Underlying NEM System Demand (LHS) Exchange Traded Futures & Options Volume (LHS) Traded MWh 80,000,000 60,000,000 40,000, Percentage (%) Exchange traded volume as a % of physical demand (RHS) 20,000, NSW QLD SA VIC 0 Underlying NEM System Demand (LHS) 69,918,565 49,964,037 12,496,691 48,283,114 Exchange Traded Futures 131,696,949 82,043,430 11,827, ,720,943 & Options Volume (LHS) Exchange traded volume as a 188% 164% 95% 223% % of physical demand (RHS) Sources: ASX, AEMO 15

16 ASX Futures & Options Liquidity % of Futures Trades by State, Cal13 % of Options Trades by State, Cal13 NSW 37% QLD 26% SA 5% VIC 32% NSW 44% QLD 22% SA 0% VIC 34% Source: ASX 16

17 ASX Futures & Options Liquidity Trading Mechanism comparison for Futures Trades, Cal13 Trading Mechanism comparison for Options Trades, Cal13 On-Screen 65% Blocks 31% EFP 4% On-Screen 30% Blocks 70% EFP 0% Source: ASX 17

18 Liquidity can exceed Open Interest by up to 700% NSW Q Baseload MW 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Open Interest MW (LHS) Cumulative Volume Traded MW (LHS) Cumulative Liquidity as % of Open Interest (RHS) ç System Demand 900% 800% 700% 600% 500% 400% 300% 200% 100% Liquidity as proportion of Open Interest 0 Oct-09 Apr-09 Oct-10 Apr-10 Oct-11 Apr-11 Oct-12 Apr-12 Oct-13 Apr-13 0 Source: ASX 18

19 Futures Arbitrage ASX allows an entire year of QTR futures to be traded as a defined strip. E.g. selling the NSW Calendar 2013 strip at $58.35/MWh strip gives rise to a short position in each of the underlying quarters at a collective average hourly-weighted price of $58.35/MWh. N.B: Live orders in the QTRs are not linked for execution to the strips, hence arbitrage situations occur. Worked Example of Futures Arbitrage.all traded via ASX Futures; e.g. at 3:59 pm, 20 June 2012 QTR Bids MWh per contract Q bid ,160 Q bid ,184 Q bid ,208 Q bid ,208 8,760 BID PRICE using QUARTERS $58.47 = (QTR Bid x MWh) MWh Actual Strip OFFER PRICE $ ,760 ARBITRAGE (ex fees) $ 0.12 from selling QTRs and buying Strip at market 8,760MWh * $0.12/MWh * 10 lots = $10,512 arbitrage To view free 10 minute delayed pricing including any arbitrage opportunities please go to: 19

20 Option Market Opportunities Electricity Options trade between 65% to 82% of annual electricity consumption. Naturals (i.e. Generators & Retailers) use ASX products to hedge their natural pool price risk. Many participants establish outright option positions, not delta-hedged option spreads. The opportunity exists for specialist option strategies including implied volatility strategies. 20

21 Other Trading Strategies/Opportunities Bought option strategies allow inbuilt stop-loss protection on trading positions. Products listed in 2013: 1. Monthly futures (LISTED IN MAY 2013): short term vs QTR futures more strip versus bullet arbitrage opportunities; 2. Options over Financial Year futures (LISTED IN MAY 2013): spreading against Calendar Year options, Average Rate options, futures strips etc; and 3. Average Rate cash settled options (LISTED IN SEPTEMBER 2013) enable built in stop-loss strategies and covered positions to be HELD DURING THE CURRENT PERIOD. Spreading against month futures, peak futures or base futures. Buying non-firm Financial Transmission Rights (cash settled inter-connect options) from AEMO and/ or spreading against firm inter-regional ASX futures. Spreading $300 Caps versus base futures. Other inter-regional and time spread strategies. 21

22 Market Access To access the market, traders must have (at a minimum) a Clearing and Trading Agreement with an ASX Clear (Futures) participant. Traders can place orders: Via voice order over the phone with a licensed broker; or Via direct access ISV systems (see below). ABN AMRO Clearing Sydney Pty Ltd Barry Parker HSBC Bank Andrew D Baker Bell Potter Geoff Louw JPMorgan Markets Mark Rechner Citigroup Global Markets Channy Shergill Macquarie Bank Limited Chris Thompson Credit Suisse Damien Jenkins Merrill Lynch Simon Fraser Deutsche Bank David Starkey UBS Kim Johnson

23 ASX Exchange Fees Futures Base Load Monthly Futures = $13 per side Base Load Quarterly Futures = $37 per side Base Load Futures Strip = $148 per side ($37 x 4 legs in the strip) Base Load $300 Cap Futures = $37 per side Base Load $300 Cap Futures Strip = $148 per side ($37 x 4 legs in the strip) Peak Load Quarterly Futures = $16 per side Peak Load Futures Strip = $64 per side ($16 x 4 legs in the strip) Options Base Load Average Rate Quarterly Options = $37 per side Base Load Calendar Year / Financial Year Strip Options = $74 per side Options Abandonment = Nil Option Exercise into Futures = As per headline Exchange Fee of resultant futures All prices are in $AUD Other Exchange for Physical (EFP) = Nil Block Trade Registration Fee = $30 per leg per side Mandatory Settlement = As per headline Exchange Fee External Fees Brokerage transaction fee (negotiable with broker) Clearing transaction fee (negotiable with Clearing Participant) Price Support Discounts Available To enquire please contact the ASX Energy Team on or info@asxenergy.com.au 23

24 ASX Energy Services & Information Free general information: Free call (within Australia) or (international) Free intra-day alerts: Options order alerts Off-market alerts; Block Trades, Custom (strategy) market, Exchange for Physical & Request for Quote Free intra-day delayed market data online: Futures and option trades (including Block Trades) Daily open interest Market bids/offers including implied bid/asks between Month, Quarter, Calendar and Financial Year contracts. Also implied Off-Peak prices. Free online ASX Energy information: Free information sessions for new entrants Product specifications, initial margins, product codes and more information Weekly and periodic market news bulletins 24

25 Useful Links and Information Industry & Government Links Australian Energy Market Operator (AEMO) Australian Energy Regulator (AER) Australian Securities Exchange (ASX) Bureau of Meteorology (BOM) Recommended Industry References AER: State of the Market Reports AFMA: Australian Financial Markets Report

26 ASX Energy Contact Details Melissa Tan Client Services Manager melissa.tan@asxenergy.com.au Christopher Pugh Product Development & Sales christopher.pugh@asxenergy.com.au 26

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28 20 Bridge Street, Sydney, NSW 2000 Telephone: