The competitive national electricity market is structured around a common pool, or spot market, for trading wholesale electricity. All electricity produced by market generators must be traded through the pool. A single central dispatch process determines a merit order for the dispatch of generators (with the lowest priced generator dispatched first, subject to system and other operating constraints) based on a five-minute dispatch cycle and half hourly trading intervals to balance supply and demand and system security.
Electricity supply and demand requirements are continually balanced by scheduling generators to produce sufficient electricity to meet customer demand.
However, the spot price can be volatile due to a range of supply and demand factors. Market participants may reduce this risk by entering long and short term wholesale bilateral contracts traded over-the-counter (OTC) between counter parties, through brokers, or by using exchange traded instruments. Whilst contracts provide a hedging facility, they do not carry with them any rights to the physical supply of electricity.
The volatility of spot prices also requires electricity market participants to maintain prudential obligations to manage risk exposures.
The Department of Resources, Energy and Tourism has developed an industry led Financial Market Working Group (FMWG), with relevant senior industry representatives. The FMWG reports to the Ministerial Council on Energy. The focus of the FMWG is to improve the efficiency of energy related financial markets including reducing prudential costs for electricity market participants.
The following websites can provide information on physical and financial markets: