EEX at Montel Nordic Energy Days 2016
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Transcript of EEX at Montel Nordic Energy Days 2016
Copyright 2015 – All rights reserved
The future of financial power trading in a low-
price market - Impact from EU-regulation
Heine Rønningen, Nordic KAM Power & Environmental Markets
European Energy Exchange
Copyright 2014 – All rights reserved
How to make the Nordic market great again?
- It is not about building a Trump style brick wall to stop central European energy flows
- It is not about a Nordic exit from IEM – Nordic Exit = NoExit, so we better stay…
- It is not about how to escape regulations – adapting is an easier pathway
- It is all about increasing liquidity by serving the needs of hedgers and traders:
Page 2
Todays topic rephrased:
Source: Nasdaq OMX
Copyright 2015 – All rights reserved
Nordic market – strong trends and lot of
potential
Page 3
Nordic market needs fresh blood – new participants and instruments to attract them
Total range 2006 - 2016 = 135 €
Range 2009-11 = 55 €
Range YtD =15 €
1. Position Quarter gap adjusted
1. Position Quarter actual price
Range 2015 = 20 €
Copyright 2015 – All rights reserved
Nordic market – structural reasons for the
unattractiveness
Page 4
Why:
- Financial players have lost their interest in the Nordic market due to non-compliant
Instruments and clearing.
- Instruments:
- DS Futures makes no sense when backed by cash
- DS Futures is not attractive to financial players due to locked in profits
- Harmonized Future structure would attract financial players, make spread
trading and exchange competition easier…..
- Clearing:
- Direct membership and non-rated members puts clearing solidity in doubt
- Direct membership is capital intensive for multi exchange participants
- Direct membership induces less competition, higher cost, reduced liquidity…….
Great potential = record low volume (15-year low) ? ? ? ?
Copyright 2014 – All rights reserved Page 5
How to make the Nordic market great again?
Hope is not a strategy - to make something change we need focused action:
Accept the things I cannot change:
- Do not waste time on: G20, ESMA & ACER on the broader accepted regulatory issues….
Change the things I can:
- Focus on:
- Measures to improve liquidity and overall market efficiency – compliant with the regulatory
framework:
- Expanding the total market by facilitating competition
- Product harmonization & development
Grant me the serenity to accept the things I cannot change...
The courage to change the things I can...
&
The wisdom to know the difference...
-based on the Serenity Prayer
Copyright 2014 – All rights reserved Page 6
How to make the Nordic market great again?
The structural reasons for the market unattractiveness
can be sorted out in two simple steps:
Exchange competition in Futures-, Day Ahead- and Intra
Day Markets:
- EPEX Spot: Will launch Nordic Bidding Zone products in
2017
- EEX Nordic Power Futures: Launched already
Product development:
- A solid liquidity base in Baseload Futures & Vanilla
Options
- + Extensions:
- non-MTF (tool for physical delivery)
- Cap Futures (tool for capacity hedging & trading)
- Bidding Zone risk mitigation tools
Copyright 2014 – All rights reserved Page 7
Exchange competition in DAM & IDM:
What:
- EPEX Spot:
- The preferred European spot exchange (566 TWh in 2015)
- Part of EEX Group
- Cleared by ECC (European Commodity Clearing)
- Launch of Nordic Bidding Zone Day Ahead & Intra Day products in 2017
Why:
- Competition is good for pricing and product development
- CACM regulation results in orderbook consolidation and a single price
- EMIR compliant clearing of DAM & IDM opens for:
- Futures, DAM, IDM cross clearing
- Physical delivery of longer term positions (Non-MTF)
- IDM index for hedging and trading capacity (Cap Future)
Copyright 2014 – All rights reserved Page 8
Exchange competition in Futures markets
What:
- Exchange competition in Futures markets
Why:
- Competition is good for pricing and product
development
- Individual exchanges has different Client
pools
- The sum of Client pools will expand the
total market
- MiFID “requires” best execution
- Harmonized products can be traded in
combined order books across exchanges
on most trading platforms
- EEX current product portfolio is harmonized
across Europe, better suited for future
challenges and compliant with new
regulations:
- Futures contracts & vanilla options
- Non-MTF (tool for physical delivery)
- Cap Futures (tool for capacity hedging
& trading)
Copyright 2014 – All rights reserved Page 9
Product development
Non-MTF (contract with physical delivery) :
What:
- Non-MTF is a Physical contract regulated by REMIT (not MiFID)
- EEX Link provides a “slewing service” and ensures same spreads in the two contracts
- Currently introduced on Phelix & French power & gas
Why:
- Makes the Clients free to trade contracts regulated by the regime of choice (MiFID or REMIT)
Prerequisite:
- EPEX Spot in the Nordics (2017)
A full presentation on Non - MTF enclosed
EEX financial futures (MiFID regulated) EEX physical Non-MTF (REMIT regulated)
EEX Link GmbH mirrors best bid - ask between the books to avoid liquidity splitting
Copyright 2014 – All rights reserved Page 10
Product development
Cap Future (capacity hedging & trading):
What:
- Average option
- Intraday Market as underlying
- The Call option structure caps the marked
- Could also be implemented as Put options
(as a floor)
Why:
- Capacity hedging and trading product
- Suitable for:
- Forecast error hedging:
- Intermittent renewable generation
- Retail load hedging
- Revealing the value of capacity:
- Flexible and controllable generation
- Demand response
- Trading
Prerequisite:
- EPEX Spot in the Nordics (2017)
A full presentation on Phelix Cap Futures enclosed
60 € Cap
60 € Cap
Copyright 2014 – All rights reserved Page 11
Product development
Bidding Zone risk mitigation:
What:
- Regulation on Forward Capacity allocation (FCA) is soon to
enter into force…
- Hedging opportunities in some Nordic bidding Zones are rather
poor (e.g. SE4, NO3, NO5)
- 12 Nordic Bidding Zones with a sufficient market efficiency are
deemed to be unsuccessful (we have tried for 20 years…)
How:
- The short term quick fix would be to introduce Volume Weighted
Average Price Indexes consisting of correlated Bidding Zones
Prerequisite:
- A commitment from the TSOs to keep some of the borders fixed
(in addition to national borders).
- TSO will face the same degree of freedom to change Bidding
Zones. No reality change from current solution.
Why:
- If you do not fix it - the regulators will fix it for you…by
introducing non firm Long Term Transmission Rights…..be
careful what you wish for…
A full proposal on Bidding Zone risk mitigation structure enclosed
Copyright 2014 – All rights reserved Page 12
How to make the Nordic market great again?
Nord Pool Spot & Forward heydays are gone (3100 TWh in
2002).
The situation will not change unless we change something:
We cannot blame it on:
- Regulations
- Financial crisis (it is 8 years ago)
It is due time to change the things we can change:
- Last decades products and exchange structure was
great…last decade
My best advice:
- Expand the total market and its client pool by introducing
competition
- Encourage product development of attractive trading and risk
mitigation tools – both fit for purpose & compliant with the
regulatory regime.
- Remember: DS Futures makes no sense when backed by
cash
- A full conversion from DS Futures to Futures is the
single most important first step to attract liquidity…
Copyright 2014 – All rights reserved
Thank you for your attention.
Heine Rønningen
Key Account Manager, Sales Power & Environmental Markets - Nordics
P: +47 90 60 87 74 | E: [email protected] | Eikon ID: