The Australian energy market is fundamentally transforming as the power generation mix changes with the country’s transition to renewables. Renewables now account for around 24 per cent of electricity generation, making Australia a highly progressive and attractive market to trade in.
With the physical energy market changing, participants are managing new and more complex risks. They are increasingly turning to ASX futures and options to manage these risks effectively while gaining exposure to key energy markets in Australia.
Operating at the heart of the globally attractive and deep Australian financial markets, the Australian Securities Exchange (ASX) runs one of world’s most liquid electricity markets. The market has grown steadily over the years and trades more than 600 per cent of the underlying power consumption in Australia’s National Electricity Market. Managed by the Australian Energy Market Operator, this wholesale commodity market facilitates more than A$13 billion in trade and supplies about 200 terawatt-hours to businesses and households each year.
“For the first time ever, contracts traded in the ASX Australian electricity futures market exceeded 1,000 terawatt-hours in the financial year 2021, up from nearly 735 terawatt-hours the previous year,” says Bradley Campbell, General Manager, Equities and Commodities at ASX. “Such robust growth has put the market among the top in the world in terms of liquidity.”
ASX has more than 80 energy contracts available across the Australian and New Zealand electricity and gas markets. Trading on ASX 24, these energy futures and options are standardised and centrally cleared, reducing settlement and counterparty credit risk. They provide price transparency and exposure to markets unrelated to equities, foreign exchange or interest rates – via derivatives denominated in Australian dollars.
Diverse participants across Asia Pacific and beyond have been using these contracts to hedge a physical position and to protect their businesses against energy price fluctuations. Many also take advantage of trading opportunities in the highly liquid Australian electricity market through these derivatives.
As Australia shifts to green energy, ASX expects to play an increasingly important role in this transition. Recently, the Australian Clean Energy Regulator shortlisted ASX to participate in the next phase of developing the Australian Carbon Exchange. This new exchange will facilitate the purchase, clearing and settling of Australian carbon credit units and possibly other types of carbon units and certificates.
Campbell explains, “At ASX, we’ve embraced the changing generation mix. We’re certainly looking forward to helping organisations deliver against their emissions reduction commitments, and to supporting more participants in the fast-growing Australian energy market.”
This article was originally published in the February 2022 edition of E-world Magazine (page 20). Supporting the E-World Energy and Water Congress in Essen Germany on 21 - 23 June 2022. The congress collaborates with scientists, business and politicians to discuss current trends and topics about the energy industry.