Traders: Keep Promoting the Benefits of Wholesale Trading

Wholesale markets will remain an integral part of Europe’s internal energy market as the trading infrastructure grows more sophisticated.
Published: Wed 08 Oct 2014

In generic terms, the EU's internal market rules require open and transparent markets with robust price signals to guide both short term market functioning and long term investments.

This is according to Klaus-Dieter Borchardt, Director B, DG Energy – European Commission, who will be a key speaker at the upcoming EMART Energy event.

Filling in the energy market gaps

In an exclusive interview with Engerati, Borchardt explains that traded energy markets have developed rather well in large parts of Europe with solid volumes and a number of facilitators, most importantly power and gas exchanges as well as trading hubs.

However, the European region has yet to attain the Internal Energy Market (IEM). He says, “The completion of the IEM is an ongoing process. Some of the necessary market rules are yet to be adopted and implemented by all the stakeholders and this will take some time, just as it will take time to fill existing gaps in Europe's energy infrastructure.”

With regards to the risks and opportunities of a non-market-based model, Borchardt believes that no-one in Europe wants to return to the past and re-regulate markets. He adds, “What we need is to make sure that necessary market interventions are implemented in a 'market friendly' manner.” As an example, state support for renewables should not interfere with the day-to-day operation of the wholesale market and renewables should not operate in times when there is no demand for its output.

Borchardt says that the Commission fully accepts that where security of supply is at risk, the State must step in. However, intervention in the form of a capacity mechanism must not be premature, and neither should it undermine the internal energy market. Regional schemes and facilitating cross border participation will help reduce costs and support the internal markets.

Energy traders facing challenges

When asked about the challenges that traders face today, Borchardt says he believes that trading is not an end unto itself. Rather, it is a “means to ensure that energy is brought to where it is needed most, in required quantities and at terms that best suit customers.” He continues, “I think in the future, trading infrastructure will become more sophisticated and the circle of tradable instruments will become even wider.”

As such, wholesale markets will remain an integral part of Europe’s internal energy market. For instance, day-ahead market coupling has become a daily reality in large parts of Europe and will become common practice in Europe (and overseas) in the near future, explains Borchardt. He adds that the intra-day market will probably follow.

He says about the new regulation, “The recently adopted financial rules will make sure that energy derivatives markets become safer and more transparent. We have also created a market abuse framework tailored to the needs of electricity markets (REMIT).”

We asked Borchardt about the impact of the Emissions Trading System (ETS) and the role of renewables in the market and he had this to say: “It is common place that our energy policies have to properly complement our wider climate actions. The Commission's recently published 2030 climate and energy goals will ensure that our measures are well calibrated and therefore mutually reinforcing. In the new framework, an ambitious EU ETS will take centre stage with RES and energy efficiency measures fine-tuned to it. For renewables we want to have the best conditions for trading of renewables across borders.”

EMART Energy discussions

Borchardt told Engerati that he wants to hear the following conversations at the event:

  • The roll-out of market coupling across the EU, including the achievement of a single intra-day mechanism.

  • The role that markets will play in underpinning the right investment choice in generation and transmission

  • The sharing of experiences and spreading common compliance standards with new financial and regulatory reporting requirements (Markets in Financial Instruments Directive (MiFID), Market Abuse Directive (MAD) European Market Infrastructure Regulation (EMIR) and Regulation on Energy Market Integrity and Transparency (REMIT).

When it comes to giving traders advice, Borchardt recommends that traders remain inventive and that they adapt to changing circumstances which he reckons traders are already good at. He adds, “Traders should see themselves as facilitators of markets and serving the common good (perhaps less of a common view held amongst them). They should not get tired of explaining to the wider public the benefits of wholesale trading.”