ambition – ENERGY TRADING IN EUROPE
EEX: a global multi-commodity platform
The transition to renewable energies is turning the electricity markets upside down. Power producers are facing rapid changes. “Our customers’ requirements change just as fast,” says Peter Reitz, Chief Executive Officer of Leipzig-based European Energy Exchange (EEX).
Short-term trading – 24/7
Systems buzzing, monitors flashing, and right in the middle: the market surveillance team at work. Business as usual, is what one might think. That’s simply what electronic trading centres look like nowadays. However, it is only quite recently that – driven by the transition to renewable energies – electricity trading has also started to become more and more of a short-term market. Electricity trading is increasingly turning into real-time trading, a development which is closely linked to the new energy sources being tapped.
“When revenues from the feed-in of wind or solar power are higher or lower than predicted – and that happens all the time – we have to take countermeasures at very short notice. Current technology doesn’t yet allow us to store great volumes of energy. Thus, production and consumption must always be balanced. ‘Volatile’ situations on the electricity market – with very high or even negative prices – aren’t unusual,” Reitz explains. You may have heard about these phenomena and the challenges involved from the many press reports dealing with the technical consequences of the Energiewende – Germany’s transition to alternative means of energy production. “To us, as a power exchange, this is not an abstract discussion – our trading systems have to be able to deal with the new overall market situation.”
Compared to a few years ago, trading has changed drastically. EEX’s customers are making use of the new opportunities: “On the physical spot markets, i.e. when trading with physical amounts of electricity, the standard nowadays is 15-minute contracts traded 24/7 and up to 30 minutes before delivery,” says Reitz. “Our derivatives market is responding to this development as well.” Using new products, market participants can not only hedge against increasingly volatile prices, but also against the specific volume risks associated with marketing renewable energy, e.g. due to deviations from predictions concerning the feed-in of wind power.
Chief Executive Officer, European Energy Exchange AG
“Volatility and structural effects are closely linked in our somewhat unique sector.”
Established in 2002 as a result of the merger of the two German power exchanges in Leipzig and Frankfurt/Main, EEX has come a long way, evolving from a local German power exchange into the leading European energy exchange. Today, EEX group covers large parts of the European continent: electricity markets in 16 countries, gas markets in nine countries and trading with emission allowances in 27 EU Member States. “Our capacities and technical possibilities are growing, as is our product range,” Reitz adds. Overall, a record spot and derivatives volume of 4,456 terawatt hours (TWh – 1 terawatt is the equivalent of 1 trillion watts) was traded in 2016, compared to 3,062 TWh in 2015. PEGAS®, the gas trading platform (spot and futures market) of EEX group, registered a total volume of 1,756 TWh in 2016, compared to only 1,042 TWh in the previous year.
Is there a secret to EEX’s success? “I wouldn’t call it a secret, but it has worked anyhow,” is Peter Reitz’s answer. “We rely on a combination of physical and derivatives trading, and offer trading, clearing – settlement and delivery – and reporting services, all from one provider. All in all, our aim is to establish a firm partnership with our clients, some of whom are also our shareholders.”
European Energy Exchange at a glance
- established in 2002 as a result of the merger of the power exchanges in Leipzig and Frankfurt/Main
- 63 per cent of the shares held by Deutsche Börse AG
- fully incorporated into the consolidated financial statements of Deutsche Börse Group since 2014
- EEX group includes Powernext, EPEX SPOT, Cleartrade Exchange (CLTX), Gaspoint Nordic, Power Exchange Central Europe (PXE) and European Commodity Clearing (ECC)
- employing a total of 450 staff members at 15 locations
- clearing and settlement of trading transactions is provided by ECC
A balanced governance model
EEX’s governance model accounts for a large part of the company’s sustainable economic growth, and strengthens the excellent competitive position of the energy exchange. “We have a strong presence in the area as well as local political support,” says Reitz. It is natural for customers who are also shareholders to be interested in the company’s positive strategic development. As a result, strategic management decisions are oriented towards the needs of the market and those of the customers. As Reitz states: “We won’t make decisions which don’t coincide with the market’s and our customers’ requirements.”
In recent years, this approach has proven to be very successful. EEX has gained considerable market share – compared to off-exchange (over-the-counter, OTC) trading – with its exchange model. A certain degree of reliability, a decisive factor in this industry, has also played a role. Sudden product and service changes can cause uncertainty. EEX’s products and services have become the market standard and are trusted by market participants. One such example is the Phelix future, which has become the established market standard in the European wholesale electricity market thanks to its liquidity. Reitz sums it up like this: “We worked hard for this success. From where we are now, it is our strategic objective for EEX to become a leading global multi-commodity platform.”
Did you know?
1 terawatt, 1012 watts or 1 billion kilowatts – equals the output of around 1 billion vacuum cleaners. With one terawatt hour, you could iron 15,000,000,000 shirts. Germany’s annual electricity usage amounts to around 600 terawatt hours.
The energy sector
“Volatility and structural effects are closely linked in our somewhat unique sector,” Reitz explains. Both are capable of being growth drivers for EEX – and already have been in the past. However, Reitz is sure that “there is only one type of growth that we, ourselves, can shape in a sustainable manner, and that is structural growth.” He is referring to growth in core markets, the geographic expansion of services, and venturing into new business areas.
“It is possible for market volatility to boost trading activity,” Reitz adds, citing the politically motivated shut-down of nuclear power plants in Germany after the nuclear disaster in the Japanese town of Fukushima as an example. “But we can’t foresee these external events – and their impact is hardly calculable. Therefore, they don’t just offer great potential, but also pose risks.”
Meanwhile, the computers at EEX in Leipzig are still humming although it is now late in the evening. The company’s location, an attractive Saxon boomtown, offers a tempting night life – but trading at the energy exchange continues. The office is staffed all night. “24/7 really means 24/7,” Reitz says, smiling.
Successful across markets: the European Energy Exchange