Volatility in the Central and South Eastern European energy markets
Market restrictions, political volatility, limited availability of transmission capacity and uncertainty about nuclear and thermal availability are only some of the factors affecting these markets explored in this article. Read on!
The past year has been a time of significant price volatility in the CEE and SEE energy markets.
There are market restrictions, political volatility, difficulties with limited availability of transmission capacity in some countries and uncertainty about nuclear and thermal availability in Western Europe.
Furthermore, the region is undergoing a process of change in terms of market coupling initiatives and new plans for national and regional exchanges.
One of the reasons for this volatility is a lack of liquidity in many CEE and SEE markets. The most striking example is Poland. “Polish traders are complaining that the market is illiquid. Nearly all major international players decided to minimize their involvement there”, says David Kučera, CEO of Power Exchange Central Europe (PXE).
Poland indeed had a drop in liquidity and is sharply criticised by the European Commission and the European Federation of Energy Traders (EFET). Polish regulations go against free market rules of European Commission, protecting the local incumbent.
“A ‘regulatory mess’ is the main reason for a substantial drop in liquidity on Poland’s forward curve”, Pawel Lont, EFET, says. “The drop in volumes reflects insecurity of the market over the regulatory environment.”
Improving the development of efficient and liquid power and gas markets
The regional energy regulators play an important role in the development of efficient and liquid power and gas markets in all CEE and SEE countries.
“SEE countries are continuing to drive forward electricity market reforms. However, there is still insufficient progress in unbundling processes and ensuring third-party access,” says Ardian Berisha, Regulatory Specialist of ERRA, the Energy Regulators Regional Association.
“There is still much room for improvement in capacity allocation and calculation, improving the liquidity of the established spot markets and the development of balancing markets. Increasing the share of RES generating capacities to meet national commitments is also proving to be a challenge as it requires credible policymaking and a stable and predictable regulatory framework which provides sufficient incentives for new RES investments and supports the development of the necessary transmission and distribution infrastructure, necessary for the safe and reliable operation of our systems”, he concludes.
Market Coupling Initiatives
We need a better coordination between all market participants. Not only on a European level between EFET and the European Commission, TSOs and DSOs, but also on a national level, the national traders' associations have a big role to play.
It’s not all doom and gloom as long as one is able to react quickly to national and international market conditions which are in a state of constant change.
Investments in infrastructure and cross-border interconnections are scheduled and improvements will be made to take away regulatory, financial, permitting and internal market obstacles.
The European Commission and the Energy Community are pushing for unbundling, de-monopolisation, more competition in the market, market coupling and better interconnectors and stronger regional cooperation. The European Union also wants to use the Energy Community to integrate Ukraine, Moldova and Western Balkan countries as well as other neighbouring states into the European energy system.
All of this requires a lot of coordination between all stakeholders. “We need a better coordination between all market participants”, also says Balázs Felsmann, economist and chairman of the Hungarian Energy Traders’ Association (HETA). “Not only on a European level between EFET and the European Commission, TSOs and DSOs, but also on a national level, the national traders' associations have a big role to play. We are experiencing very interesting times at the moment!”
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