The AEMC today made a draft rule enabling, but not requiring, the Australian Energy Market Operator (AEMO) to provide a platform for secondary trading of settlements residue distribution units.
The draft rule, which follows a rule change request from Westpac Banking Corporation, would:
- enable auction participants to offer their previously purchased units for sale at subsequent auctions facilitated by AEMO
- require AEMO to distribute auction proceeds to either the relevant transmission network service provider (TNSP) or auction participant
- require AEMO to pay the relevant auction proceeds associated with the primary auction to the TNSP prior to paying out any auction proceeds to any secondary seller
- prohibit the auction rules from placing additional risks related to secondary trading on AEMO and TNSPs.
Enabling AEMO to provide a platform for secondary trading of units would improve liquidity in the market for these units. This improved liquidity is likely to increase interstate trade of electricity, improve risk management and increase competition.
The draft rule, which is a more preferable rule, addresses the same issues as Westpac's proposed rule, but takes a different approach with regards to consequences of any additional risks that may arise in relation to secondary trading.
Submissions on the draft determination are due by 29 August 2017.
Bronwyn Rosser, 0423 280 341 or DL (02) 8296 7847
Regions of the national electricity market (NEM) have different levels of demand and differently priced generation, which leads to different wholesale prices. Price separation between regions generally occurs when there is not enough interconnector capacity to equalise the spot price flowing from a lower to higher priced region. The difference between the price paid in the importing region and the price received in the exporting region, multiplied by the amount of flow for each interconnector for a trading interval, results in surplus inter-regional settlements residue.
AEMO auctions the rights to a share of this settlements residue on a quarterly basis, which provides auction participants with an additional hedging tool to help manage inter-regional price risk. While secondary trading of previously purchased settlements residue distribution units is not prohibited by the National Electricity Rules (NER), Westpac’s rule change request proposed a new platform for secondary trading based on an AEMO-facilitated auction.