The Energy Market Revolution is in Full Swing

The energy transition is opening up many doors of opportunity to the energy trading industry.
Published: Fri 19 Sep 2014

North Western European (NWE) price coupling, launched on 4 February 2014, was the first implementation of the Price Coupling of Regions (PCR) solution, developed jointly by European power exchange APX, and its European power exchange partners.

PCR provides a single algorithm and operational procedures, which connect together the Day-Ahead power auctions of each participating exchange using the available interconnector capacity.

Working towards a fully integrated European electricity market

By reducing barriers to cross-border trade, market coupling results in higher liquidity and competition, as well as a better use of the available interconnector capacity.

The NWE and SWE countries (Belgium, Denmark, Estonia, Finland, France, Germany/Austria, Great Britain, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland (via the SwePol Link), Sweden as well as Spain and Portugal) cover approximately 75% of Europe’s electricity demand and there are plans to extend the solution to other parts of the region.

Simultaneously with the NWE price coupling launch APX introduced “smart products” – exclusive block order and linked block orders. Smart products make it easier for members to reflect the physical nature of their portfolios into the Day-Ahead auction and offers additional opportunities with respect to active demand side management.

In an exclusive interview with René Kerkmeester, CEO of APX, who will be attending the upcoming EMART Energy conference, he explains that one of the most important aspects of the NWE price coupling is that APX is able to provide new products for their members to improve the market liquidity and help better manage their risks. “The development of new products has been one of our priorities over the past years, and smart products will make it easier for our members to reflect the physical nature of their portfolios in their bids on the Day-Ahead auction.”

He says, “We have come a long way with the PCR project despite the transition in the energy industry. There are many projects all with their own challenges and they involve many stakeholders”. Currently a European-wide cross-border Intraday project is being developed. “People really want this intraday solution especially with the renewable integration now.”

The energy markets are changing

The dynamism of the energy trading market is changing due to the energy transition, explains Kerkmeester. He lists the changes as follows:

  • An increased need for flexibility to address the impact of high share of intermittent renewable energy sources
  • Increased distributed network operator level constraints

  • Opportunity for new flexibility services based on smart meters (demand side management)

He says that the changes have brought about various challenges and the market is faced with a number of issues that need to be tackled:

  • Development of new flexibility products

  • Ensuring the efficient use of available flexibility sources (by transmission system operator, distributed network operator and balance responsible parties)

  • Support for distributed network operator, transmission system operator system operation (eg. data)

  • Alignment with existing arrangements (eg. Balancing responsibility)

With any transition, there will always be challenges but Kerkmeester points out that there are also definite opportunities for the energy trading market. He says, “The market is undergoing a revolution and industry players have to re-think their positions. They have to innovate and explore new roles.”

Opportunity lies in the close to real-time trading

Opportunities are moving towards near real-time,: intraday and day-ahead markets, explains Kerkmeester. There is a definite move from long –term towards short term and trading is moving from the over-the-counter (OTC) market towards the exchanges.

“With the growth in renewables, there is more volatility in the system which calls for more real-time trading,” he explains. He says that trading companies now have meteorologists and weather forecasters helping them to predict wind and solar outputs in order to trade more effectively.

“Opportunities definitely lie in forecasting and flexibility. Multiple parties will want the ability to flex. The question is whether today’s intraday market and the balancing market will be sufficient to address the increasing demand for flex. Storage and demand side are new actors in the game and will also have a major effect on the market.”

There is a definite need to facilitate access to wholesale energy markets for decentralised generation and demand side management :

-Product /algorithm design

-Aggregator processes/interfaces

-Business processes (balance responsibility, settlement etc)

This will create a platform that enables energy optimisation within transport constraints and will give transmission system operators and distributed network operators the ability to solve transport constraints in a market-based way.

Changes in the energy trading market are for the best

We asked Kerkmeester for his take on the revised rules for the energy trading market and he responded by saying that REMIT (EU regulation on wholesale market integrity and transparency) supports APX’s three main focus areas which are:

1. Provide trading platform for robust , transparent and liquid electricity markets and providing products and services according to the needs of their trading members

2. Pioneering European market integration and working towards a single European electricity market together with their power exchanges and TSO’s.

3. Facilitating Europe’s energy transitionHe points to the three main pillars of REMIT as:

  • Prohibiting Market Abuse (insider trading, market manipulation) including publication of inside information

  • Transaction reporting (including orders to trade)

  • Registration of market participants with NRA.

He says, “This additional legislation supports APX’s objectives, and therefore the new regulations supports us and our business.”

In conclusion

“The topics and developments discussed in this interview are relevant and we want to hear various actors discussing them at the EMART Energy conference. It will be interesting to hear these topics discussed and debated from different angles.”