‘Towards the pan-European power market’ says the website of the European power exchange that was launched today (www.epexspot.com). It is the result of the merger of the spot market activities of the German EEX power exchange and France’s Powernext. To the policymakers that originally worked on EU energy market liberalization this slogan must sound like music. For one of the original aims was indeed to create the ‘single copper plate’, an EU-wide electricity market. With the creation of Epex, this comes closer. The EU has adapted its policy by aiming for regional markets first and then for a pan-European power market. With Epex, a key regional market is taking shape.
It is not surprising that German and France merge their spot markets. With the improvement of cross-border connections and the allocation of cross-border capacities, we notice since a few years the emergence of a German – French – Belgian – Dutch – Luxemburg market. Prices in these markets have come very close to one another, not just in spot but in forward markets also. And the allocation of short term power plant capacities that is settled in spot power markets, has also become a cross-border affair. Dutch gas-fired plants heat up as unfavorable conditions in Germany cause a drop of wind power output or as French nuclear plants shut down for maintenance.
How important is this development for the end consumer? First of all, we have to understand that these are developments that only affect the wholesale market, not the retail market. The big power suppliers in the region such as EdF, E.On, RWE, Vattenfall, Electrabel, etc. currently have a retail market approach aimed at the separate countries, not at the whole regional market. If they do anything on a regional basis, it is buying companies in one of the other countries to establish a stronger national presence. Think about EdF buying EnBW, RWE buying Essent or Vattenfall buying Nuon. But if you talk to the sales organizations of any of these companies, it is clear that they are organized on a national and not a regional level.
But of course, the wholesale market developments are important, as they determine the price that the industrial consumer will ultimately pay. Creating wholesale markets for larger geographical areas is an important development. It adds liquidity to these markets. Especially in markets with liquidity issues such as Belgium or the Netherlands, such a development is positive.
We should also remark that Epex (for now?) is a spot exchange. Most end consumers buy prices based on forward prices. Both French and German power futures are now traded on the EEX. But it remains two separate prices and markets up until now. We hope that this will change soon.
