EEX-Powernext cooperation: Forward-looking step on the path towards a European power market

Security of supply, harmonisation of prices throughout Europe, open competition – those were the aims pursued by the liberalisation of the European energy markets initiated in 1998. On the occasion of the first joint press conference of the partners European Energy Exchange AG (EEX), Leipzig, and Powernext SA, Paris, in Brussels, EU Energy Commissioner Andris Piebalgs said “I am pleased to stand here today and be a witness to an important agreement, which, I hope, also means great progress for the European electricity market. Efficient power exchanges are indeed an issue that the European Commission’s Energy Policy for Europe recognised as a key requirement for a well functioning electricity market’. The intense cooperation between EEX and Powernext is an innovative motor and initiator for a pan-European power market. While it is advantageous for final consumers to have many power suppliers to choose from, a cooperation of the trading platforms is desirable on the wholesale level in the interest of a uniform European single market.

The cooperation is characterised by a transparent and reliable wholesale price formation mechanism, centralised and increased liquidity as well as standardisation and harmonisation of the trading and clearing processes. This means that the European vision of a common price from Finland to Spain is clearly starting to take shape on the basis of the two core markets Germany and France.

Geographically, the cooperation will include Germany, France, Austria and Switzerland, which together cover more than one third of the European consumption of electricity. The process for market coupling launched last year for an improved management oftransmission system bottlenecks in central western Europe (the Benelux, Germany, France) will be facilitated and continued to a significant degree through the cooperation between the two exchanges.

“Strong market infrastructures are, just as much as transportation infrastructures, essential to provide a competitive and secure energy in Europe. Our cooperation is geared towards that goal“, Powernext’s CEO Jean-François Conil-Lacoste explains the framework for the project. At the press conference, Mr. Conil-Lacoste and EEX’s CEO, Dr. Hans-Bernd Menzel described the implementation of the cooperation:

• Following the establishment of Spot Trading SE with registered offices in Paris as of 30 September of this year, Powernext and EEX will integrate their entire spot trading activities in power under the umbrella of the newly established company by the end of the year. Both partners hold 50 percent of the shares in the SE each.
• Retroactively as of 1st January 2008, EEX will transfer its trading in power derivatives to the newly established EEX Power Derivatives GmbH in Leipzig.
• Retroactively as of 1st January 2009, Powernext will contribute the French power futures to the new GmbH [German limited liability company] in Leipzig and, in return, it will receive 20 percent of the shares in the company.
• As of April 2009, Powernext will have its exchange trades cleared and settled via the EEX subsidiary European Commodity Clearing AG (ECC). At that time, ECC AG will also assume clearing of the French power futures which will be traded via the Leipzig-based derivatives market company.

“With the implementation of these steps we lay the foundation for a pan-European exchange which is open to further partners“, Dr. Menzel emphasises with a view to the future.

EEX operates Spot and Derivatives Markets for energy products and energy-related products. With more than 200 trading participants from 20 countries it is the energy exchange in continental Europe which boasts the biggest number of trading participants and the highest turnover. While coal is only quoted on the Derivatives Market, power, natural gas and CO2 emission rights are traded both short-term on the Spot Market and long-term on the Derivatives Market with a time horizon of up to six years into the future. Clearing of exchange and over-the-counter transactions (OTC clearing) is provided by European Commodity Clearing AG (ECC). ECC is the clearing house of EEX and a subsidiary of the exchange.

Powernext SA, incorporated in 2001, manages several complementary, transparent and anonymous energy markets: Powernext® Day-Ahead facilitates, 365 days a year, the hourly balancing of physical power delivered the following day on the French hub; Powernext® Futures provides electricity price risk hedging for a period ranging between one month and three years; Powernext® Balancing GRTgaz allows the Transmission System Operator GRTgaz to progressively cover its daily balancing needs through a market based mechanism. Powernext recently announced the launch of a spot and futures national gas market by the end of 2008. Powernext® Carbon, the leading spot CO2 market in Europe, was sold to NYSE Euronext in December 2007.