+------------------------------------------------------------------------------+
Price Gaps Shrink Amid European Power Mergers: Energy Markets
2010-10-20 23:00:01.5 GMT
By Lars Paulsson
Oct. 21 (Bloomberg) -- Price differences in Europe's power
markets are evaporating as exchanges merge and transmission
cables are used more efficiently, advancing the continent's push
for a single trading arena.
The average gap between French and Dutch electricity for
next-day delivery was 1.38 euros ($1.93) a megawatt hour in the
first nine months of this year, according to data compiled by
Bloomberg. It was 7.85 euros in the same period four years ago,
before exchanges and grid operators began "market coupling,"
the system that automatically directs energy to the country with
the highest prices.
Exchanges are linking up to gain market share after
electricity trading climbed to a record last year. The European
Union, home to at least 15 power exchanges, aims to have all
countries connected through market coupling by 2015. Germany and
Austria will join France, the Netherlands and Belgium in the
existing coupling project on Nov. 9.
"Eventually it makes sense to have one spot exchange in
northwest Europe," Jean-Francois Conil-Lacoste, chief executive
officer of Epex Spot SE, a venture owned by Germany's European
Energy Exchange AG and France's Powernext SA, said by phone from
Paris. "This will happen in the next five years."
Europe is pushing for a unified power market to promote
competition between producers and increase consumer choice,
according to Marlene Holzner, an energy spokeswoman at the
European Commission, the executive for the 27-member bloc.
It's "crucial," she said by e-mail from Brussels.
"Market coupling will gradually bring prices in neighboring
countries closer together."
Identical Prices
Next-day prices in France, Belgium and the Netherlands were
identical in 58 percent of last year's auctions, according to
APX BV, the Amsterdam bourse that got EU approval last month to
buy Belpex, a Belgian power exchange. Prices never matched prior
to November 2006, when market-coupling began.
While coupling narrows price differences for day-ahead
markets between countries, traders can still profit from the
differences in countries' longer-dated power contracts. The gap
between electricity for next-year delivery in the German and
Nordic markets was as much as 2.90 euros a megawatt hour
yesterday, according to Bloomberg data.
Power traders are doing final testing for the expanded
coupling project, said Enno Boettcher, Hamburg-based managing
director of European Market Coupling Company GmbH. The addition
of Germany and Austria still needs regulatory approval.
'Wrong Approach'
Price differences between the five countries will shrink as
"capacity is used in the best way," said Andrea Siri, head of
origination for continental power at Edison Trading SpA in
Milan. "There should be some narrowing in principle, but that
process will take some years."
For RWE AG, Germany's second-biggest utility, market
coupling doesn't encourage transmission-system operators to
invest in cables and remove power bottlenecks.
"It's the wrong approach," said Stefan Judisch, chief
executive officer at RWE's Essen-based supply-and-trading unit.
Still, because most parties support coupling, "we are not
opposing this anymore," he said.
Poland and Sweden are also preparing to link their
electricity markets, with coupling scheduled to start by the end
of next month via the Swe-Pol cable. PGE SA, Poland's largest
power group, is offering to sell a 21 percent stake in the
country's electricity exchange and has garnered interest from
"a few" parties already, according to Sylwia Filimon, a
company spokeswoman in Warsaw.
"Poland is a very interesting market for us" because of
the cable with Sweden, Mikael Lundin, chief executive officer of
Nord Pool Spot AS, the Oslo-based power exchange, said in a
Sept. 10 interview. "The market-consolidation process will
continue in Europe," he said, declining to say whether his
company bid for the PolPx stake.
Conil-Lacoste, who founded Powernext in 2001 and traded
oilseeds and grains for 10 years at Louis Dreyfus Corp., said
market-coupling provides better opportunities for buyers.
"If you have coupled markets, the supply-and-demand
spectrum is much larger, he said. "So you will find the
cheapest offer across a much larger territory."
He declined to say whether Epex and Powernext are in merger
talks with other exchanges.
For Related News and Information:
For more Energy Markets columns NI NRGM <GO>
European power-market stories TNI EUROPE PWRMARKET <GO>
Today's top power and energy news PTOP <GO>, ETOP <GO>
Energy markets home page NRG <GO>
European Spark and Dark Spread Calculator ESSC <GO>
--With assistance from Ewa Krukowska in Brussels, Nicholas
Comfort in Frankfurt, Maciej Martewicz and Marek Strzelecki in
Warsaw. Editors: Mike Anderson, Justin Carrigan.
To contact the reporter on this story:
Lars Paulsson in London at +44-207-673-2759 or
lpaulsson@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or
sev@bloomberg.net
