Forward price curves

Report notes

1. Forward price curves are derived from the settlement prices of exchange-traded instruments, specifically New Zealand electricity futures contracts traded on the ASX platform.

2. A settlement price is determined for each contract at the end of every trading day, regardless of whether any trades for the particular contract occur. The process for determining the daily settlement price can be seen at http://www.asx.com.au/documents/products/energy-market-policy.pdf. The Authority acquires ASX data on a subscription basis and receives it following the close of trade each day. See http://www.asx.com.au/products/energy-derivatives/new-zealand-electricity.htm for a complete description of contract specification terms, including reference locations, units, commodity types, and contract durations.

3. Forward price curves are produced from a group of maturing contracts. The default forward price is calculated each trading day as the average settlement price of all long-dated Otahuhu baseload quarterly futures contracts. The default setting for this report shows a forward price curve for Otahuhu baseload quarterly futures superimposed over two Otahuhu average spot price series - the simple daily average and a 7-day moving average. The location parameter can be used to switch to the Benmore forward price curve.
   Alternative representations of the forward price for the selected location, commodity type and duration can be seen by selecting a maturity timeframe in the series filter:
   • the average settlement price of all long-dated contracts (default - contracts maturing more than 12 months from each trade date)
   • the average settlement price of all short-dated contracts (contracts maturing within the next 12 months of each trade date)
   • the average settlement price calculated using all contract maturities
   • the average settlement price calculated using all contracts expiring in a selected calendar year that are still being traded on the day indicated on the x-axis
   • the average settlement price of contracts expiring in the 12, 18, 24 and 30-month periods following the front two quarters. Settlement prices from the front two quarters, that is, the current and next quarters, are excluded from the calculation so that short-term hydrological conditions are unable to influence the forward price. The 12-30 month alternatives recognise that different agents have to make decisions over varying time horizons.

4. Duration refers to the time period over which futures and options contracts are defined. Currently used durations are monthly, quarterly, or calendar-year strips. Monthly contracts are introduced at the beginning of each quarter for the two quarters ahead. Quarterly contracts for all quarters in a year are introduced on the first trading day of the fourth quarter for the quarters of the year four years ahead. Monthly and quarterly contracts may be traded from the time they are introduced until they expire. Strips contain a strip of four quarterly contracts covering one calendar year. They are introduced at the beginning of the fourth quarter for the year four years ahead, and may be traded up until the end of the first quarter in their year of expiration.

5. Maturity or expiry dates apply for all individual contracts for each instrument, commodity type and duration. Users can select a specific contract expiry date that, when combined with a location, commodity type, and duration, defines a specific contract.

6. Commodity types are baseload and peak. Baseload commodities refer to 0.1 MW of electrical energy per hour for every hour of the contract's duration. Peak commodities only exist for quarterly durations and refer to 0.1 MW of electrical energy per hour for all hours between 7:00am and 10:00pm on each business day within the contract's duration.