Growth in electricity trading

  • German energy trading volume grew again in 2013: according to RWE calculations the quantifiable electricity trading volume amounts to 5,905 TWh (EEX and e-OTC, without telephone or bilateral trading). This is an increase of 372 TWh or 6.7 % compared to 2012.1
  • The demand for electricity supplies in Germany 2013 was estimated to approximately 596 TWh by the Bundesverband der Energie- und Wasserwirtschaft e. V. (BDEW). This means that every TWh was traded around ten times before the contract was fulfilled and a (physical) delivery took place.
  • On the European Power Exchange (an amalgamation of the German EEX and the French Powernext) a total volume of 1,610 TWh for spot trading and forward trading was turned over in 2013.

More Liquidity, more competition

  • Germany sets standards for competition, in trading volume and in transparency.

Questions and answers about the electricity trading market

Progress towards integration of electricity trading markets in Europe:

  • The integration of European trading markets is progressing swiftly and RWE's commitment to leveling the playing field for all market participants plays a big part in this.
  • RWE actively supports the implementation of the European target model for electricity market integration and is involved in the dialogue between the EU commission and other initiatives of the market participants.
  • In the current setup the German power market is already closely linked to neighboring power hubs. The introduction of the Central-West-Europe/Nordic market coupling between Germany, France, Belgium. The Netherlands and Scandinavia has already led to equal spot prices for many hours throughout the year. We expect further improvements due to the introduction of the North-Western Europe Price Coupling (including Great Britain) by November 2014 and CWE flow-based coupling at the beginning of 2015.
  • Market coupling uses implicit auctions in which players do not actually receive allocations of cross-border capacity themselves, but bid for energy on their exchange. The exchanges then use the available cross-border transmission capacity to minimize the price difference between two or more areas, optimizing the overall social welfare. This has led to identical exchange prices as long as no bottlenecks occur on the grid.
  • In addition, a forward market offers generators, individual consumers and traders the opportunity to hedge risks. Booking forward cross-border capacity allows underpinning the setting of fixed electricity prices with equally fixed prices for transport capacities.

Merits of the German electricity trading market:

  • Alongside Scandinavia, Germany is the most developed electricity trading market in Europe.
  • From a trader’s perspective, the German electricity trading market sets the benchmark for Europe: no other market offers as much competition, liquidity and transparency.
  • Other European trading market participants use the German market to actively manage their portfolios and risk. German prices have a leading function for many less developed markets in Europe.

Power trading: Continental Europe volumes 2001 – 2013

 

 

EU initiatives for applying the principles of financial market regulation to commodity markets and for the regulation of off-exchange derivatives trading

  • RWE welcomes all EU initiatives to improve transparency, integrity and trust in the energy wholesale markets as this encourages greater participation and liquidity in our markets.
  • Financial regulation must, however, be appropriately tailored to the different markets, participants and circumstances. The “one size fits all” application of banking regulation to physical markets and their participants threatens to undermine energy market liquidity and increase costs to consumers without any corresponding improvement to wider financial market stability.
  • It is equally important to preserve the benefits of both exchange and off-exchange trading to ensure effective competition between trading platforms, to retain flexibility to manage risks in OTC markets while continuing to access the benefits of clearing where this makes sense.
  • RWE is working hard with the EU institutions and other stakeholders to improve market integrity and transparency, to ensure appropriate exemptions from financial market regulation for energy market participations and to ensure that the boundaries between the physical and financial markets are drawn appropriately.
  • In our trading business we only commit to positions that we consider to be controllable and economically sound. Our risk management is geared towards limiting the accumulation of longs and shorts and the risks inherent in them in accordance with the day-to-day situation on the market.

Isn't speculation per se responsible for inflated prices?

  • Speculation is a constitutive element of markets and their expectations on the development of supply and demand with regard to instruments as well as to energy resources and their derivatives.
  • Speculators take on the price risk that producers and consumers are not willing to take. Producers sell their surplus – in our case electricity and consumers buy what they need. Speculators buy what they do not need and sell what they do not have but are willing to settle and are thus the risk takers for both producers and consumers.
  • Speculation is also a result of the market evaluating prices in regard to their fundamental justifiability. The market might follow these signals and thereby confirm that there are valid fundamental reasons for engaging in speculation.
  • In our opinion rigid and controlling intervention in price formation and market processes is likely to weaken liquidity and therefore to reduce the chance of finding trading partners and assuring against risks. This will eventually significantly increase prices for end customers.

 

1Comparison:
Scandinavia: 1,903 TWh (-2,5 % or -49 TWh)
France: 572 TWh (+7,9 % or +42 TWh)
Spain: 614 TWh (+18 % or +94 TWh)
Netherlands: 326 TWh (+34,1% or +83 TWh)