G. Ioannou: From the end of 2023 de-escalation in energy prices

Interview with Haris Floudopoulos

Energy prices, as shown by futures contracts in Europe, are expected to escalate by the end of 2023. Capital.gr the CEO of the Hellenic Energy Exchange Group, George Ioannou, on the occasion of the participation of the Hellenic Energy Exchange in the Athens Energy Dialogues, which starts today.

Mr. Ioannou answers the questions about the operation of the electricity market during the energy crisis and at the same time refers to the futures market which presents low liquidity.

He refers to the role that the ERA can play in the new trading platform of RES PPAs as well as in the newly established pedestal of Gas Trading.

Various aspects, from time to time, attribute the high prices in the wholesale electricity market, to the operation of the energy exchange. What has essentially changed with the new way the market and the Energy Exchange operate? How do you respond to these allegations?

The increase in prices in the wholesale electricity market is due to a combination of factors not related to the operation of the ERA. The ERA is the infrastructure and the tool for facilitating transactions. The wholesale market for the planning of the Next Day Market has been operating in Greece since 2005. In the context of the Integration of the European Electricity Markets, from the end of 2020 the ERA adapted the market solution model based on the European Target Model and proceeded to the coupling of the Next Day Market with the rest of the European Markets. The new model continues to apply a central auction with the same categories of participants (producers, suppliers, traders, cumulative RES representatives) and the same Uniform Pricing Auction methodology.

What has practically changed is the use of common products and types of orders and the joint resolution of this auction at European level with the aim of maximizing the common European economic benefit. The operation / organization of the ERA in terms of stock exchange transactions does not affect the level of prices.

On the contrary, this model expands access to more economical energy sources and increases security of supply at European level, ensures co-trading with a significantly wider range of participants and increases price competition, promotes optimal utilization of couplings , and, finally, the transparency of transactions is ensured and the supervisory mechanisms exercised by the competent Regulatory Authorities are facilitated.

How will the government’s plan to control prices in the wholesale market be implemented in practice from July? To what extent will the Energy Exchange be involved in the process and how will the market be resolved and prices formed? Are you ready for this change?

This project is in the final stage of formulation / negotiation with the principles of the European Union (EU). However, the relevant technical details of the promoted solution have not yet been finalized so that we can safely provide answers for its technical implementation. From the first estimates it seems that there are no technical interventions in the way of solving the next day market but additional procedures concerning the payments of the producers.

The high prices in the wholesale are 100% in the retail as there are no bilateral contracts of suppliers and producers. Why do not we have such contracts and what initiatives do you take as a stock market to stimulate the futures electricity market? What is the reason that while the whole market admits that it has an increased risk, the players do not proceed with concluding bilateral contracts?

Let us first clarify that we are talking about two different concepts: On the one hand the organized futures market of HEnEx and on the other hand the way in which the participants are given the opportunity to “pass” bilateral contracts with physical delivery which they have concluded from the Next Day Market. For bilateral contracts I will make a detailed report below.

Regarding the futures market of HEnEx, it should be emphasized that it has a special negotiator. This means that for a significant percentage of the available futures products there are supply and demand orders at any time which a participant can take advantage of, always depending on his own needs and his position in the market.

At the same time, the purchase of HEnEx futures products provides for the management of the liquidation and the counterparty risk for transactions that have taken place outside its own organized market. Therefore, participants are given opportunities for transactions and additional services in the form of liquidation and risk management.

In any case, the fact that the liquidity observed in the futures market is relatively low is something that concerns us strongly.

At this stage, on the occasion of the measures proposed by ACER in the Final Evaluation of the design of the wholesale electricity market of the EU, which was published at the end of April 2022, we are studying moves that will help this market to show higher trading volumes.

Such moves, for example, are the provision for the participation of brokers, the expansion of available products as well as the open dialogue with the participants not only to present the possibilities that are offered today, but also to listen to the market proposals. on the specific trading platform.

What about the 20% limit for concluding bilateral PPC contracts? Will it continue to exist or will we have a change? Will there be a possibility of concluding bilateral contracts over the counter, outside the energy exchange?

First of all, I would like to make it clear that even today bilateral contracts are traded outside the Energy Exchange.

However, for the smooth operation of the country’s electricity system, the specific contracts have an obligation of physical delivery, ie they are introduced in the Next Day Market as priority orders and ultimately do not participate in the formation of the final hourly price of the wholesale.

You therefore understand that the possibility you mention already exists. The reason why these contracts are executed as priority orders is none other than the optimal planning of the electricity system.

As for the restriction you mention, I would like to say that we have already commissioned a study that will review this percentage and the possibility or not of increasing it.

However, I would like to emphasize that the existence of this specific restriction on the conclusion of bilateral contracts by natural tradition does not constitute a more general restriction on the conclusion of bilateral contracts.

However, it is a measure against the exercise of a dominant position for a participant with a significant share of the supply market. The conclusion of bilateral contracts is possible regardless of the release of this percentage and the stock market can play a central role in both the settlement of these contracts and the risk management of counterparties.

The introduction of this percentage ensures the necessary liquidity in the Next Day Market so as to produce reliable and transparent economic signals which allow the economically optimal operation of the electricity system in the short run and the economically optimal investment planning in the long run. Investments which are considered the cornerstone of the green transition and the European Green Deal.

What will be the role of the energy exchange in the new trading platform of RES PPAs?

At this stage we are considering internally the opportunities that may arise for the Energy Exchange from the operation of the new trading platform of RES PPAs taking into account both the technological capabilities that we have proven and the capabilities of the exceptional human resources that are included in the stock Energy. We are aware of the aspects of this project and we make every effort to be in coordination with all stakeholders. We believe that the Energy Exchange, with its extensive experience in operating a range of energy trading platforms, clearing transactions and managing risk, can guarantee the success of such an endeavor.

When do you estimate that there will be a de-escalation of high prices in the wholesale electricity market and what factors will play a role in this direction? What do forward contracts for electricity and gas in Europe show?

The rise in electricity prices is directly related to the corresponding increase in the cost of natural gas supply (VAT). Cheaper prices in the PV will eventually lead to the de-escalation of electricity prices as the other components of the energy mix are not enough to fully and reliably meet demand.

The long-term forecasts of international companies and organizations regarding VAT prices lead to a gradual de-escalation towards the end of 2023, taking into account the gradual implementation of diversification of supply sources.

In the gas market. What are the first samples from the operation of the gas platform? Are you satisfied with the operation of the market so far? Will the market evolve like the electricity market?

The intense interest shown by the market during the preparation for the operation of the Gas Trading Stand was followed by the registration of eleven companies in the Gas Trading Stand from the very first day of its operation. Today there are sixteen Participants, all with an active presence in the trading daily, while in the near future their number is expected to increase as a number of candidate Participants have expressed interest and follow the prescribed registration procedures. There are currently two companies with the role of Liquidity Provider.

The Gas Trading Stand, in its short so far, but without problems and with successful operation, provides the appropriate tools for the balancing of the National FA System by the Administrator (DESFA), facilitates the transactions between the participants and promotes the competitiveness. in the VAT market which implies a reduction in supply prices.

The new conditions created in the market with the opening of the Gas Trading Stand are reflected in the ever-increasing trading volumes, thanks to the stability, the advantages and the transparent operation of the new trading platform. At ERA we are convinced of the equally successful course of this market as in electricity.