RWE advocates European-wide standards and full transparency for wholesale energy trading markets

• RWE supports the initiatives of the EU’s Energy Directorate-General


• Germany and Scandinavia are the ‘gold standards’ for liquidity, transparency and market maturity


• RWE would not support the wholesale and like-for-like application of recent proposals for regulating financial markets to the energy trading market

RWE confirmed its support for common regulation and fuller transparency for trading electricity, gas and CO₂ across Europe. Stefan Judisch, Chief Executive of RWE Supply & Trading explains: “Every initiative to create a level European-wide playing field for energy traders has the support of RWE – and in particular - the recent proposals of the EU Commission’s Energy Directorate-General to improve market integrity and transparency.

German and Scandinavian wholesale electricity markets offer exemplary conditions for electricity traders. These markets consequently attract the greatest number of traders in a host of energy commodities and together account for well over half the volume of total European electricity trading. “This liquidity is testimony to the high-quality of information available to market participants, their overall transparency, their fully functional exchanges and fair trading conditions,” adds Stefan Judisch. These factors also explain why the German wholesale electricity market has the highest trading volumes in Europe – of late, surpassing those seen in Scandinavia. High barriers to market entry and the piecemeal nature of market information that characterise some Eastern European countries, France, Spain and Italy - are detrimental to competition and hence consumers.

RWE has consistently and constructively lobbied for enhanced transparency as a prerequisite for the further development of competitive energy trading markets. As part of this drive, RWE was from mid-2007 one of the first companies in Europe to make available to the markets comprehensive and constantly updated information about its electricity production and the causes and duration of outages and electricity grid feeds. As recently as this month, RWE’s Dutch daughter company, Essent NV, began publishing its total Dutch power plant capacity on an hourly basis, leading the way for improving transparency in the Dutch market. Additional data on individual power plant operations including output and future availability will be published before the end of the year, boosting disclosure in the Netherlands to the level provided in neighbouring Germany. RWE has also campaigned to improve the degree of transparency on the European Energy Exchange (EEX). Transparency around fundamental market data – to the same standards and applied across the whole of Europe – is vital to ensure supply and demand trends are correctly assessed using broadly-based and accurate information. From this will follow the fairest possible market pricing of energy for end users.

Any Europe-wide regime should also assess the role of off-exchange trading, although without compromising the positive functions of this integral component of energy markets. Over-the-counter (OTC) markets offer energy traders greater flexibility than exchange traded contracts. That’s to say, counterparties can agree bespoke contracts in terms of volumes and delivery times using OTC contracts that precisely meet their specific requirements – as against the standard-term contracts that are traded via exchanges.

With regard to further proposals for the reform of European energy trading markets, RWE advocates considered, targeted regulation. For example, when introducing transparent pre- and post-trading transaction data, care should be taken to ensure that this is made publicly available only in an anonymous and aggregate form, in order to protect the confidentiality of commercially sensitive transactions. Aggregated information is completely adequate to validate the integrity of pricing mechanisms in relation to trends in supply and demand.

Equally, RWE would not support the wholesale and like-for-like application of recent proposals for regulating financial markets to the energy trading market, in particular when it comes to the claim for mandatory clearing of OTC transactions. Energy trading does not pose systemic risk to the wider financial system – by way of example, no electricity or gas customer has materially suffered from the collapse of an energy company, nor of a bank engaged in electricity or gas trading. A fundamental difference between the pricing of financial products and commodity derivatives explains why this is the case. A financial asset can retain a notional value in its market for a long period of time, and then collapse in value. In the case of energy commodities, prices reflect actual physical demand and actual physical supply on a daily basis. Put another way: since electricity cannot be stored, there is a daily – or even hourly - coupling of prices to supply and demand levels.

There are many different organisations involved in energy trading markets. In addition to major market players, such as energy companies, high-volume industrial consumers, oil conglomerates and banks, there are smaller trading partners such as municipal utilities and retail companies actively involved. However, smaller private investors simply do not figure among direct market participants. Since end-consumers, the group meriting particular regulatory protection, are not involved in energy trading, future EU legislation for energy markets can afford to take a different approach from the consumer-oriented measures that characterise much of currently proposed financial regulation.