NMa: Trade in Electricity Still Not Optimal

Trade volumes (liquidity) on the Dutch wholesale market for electricity have increased compared to 2003, but are still relatively low. As a result, the development of efficient competition has been obstructed. Countries like Germany, the United Kingdom and the countries of Scandinavia perform better with regard to liquidity, according to NMa's Office of Energy Regulation (DTe), in a report presented today to the Minister of Economic Affairs. One of the reasons for this is that insufficient progress has been made with the introduction of measures proposed in 2004 to improve transparency, liquidity and competition.

DTe, a part of the Netherlands Competition Authority (NMa), is of the opinion that the degree of transparency of the electricity wholesale market in European countries must be harmonised. At present, within the European context, the Netherlands has an average score with regard to the degree of transparency, and the differences in transparency between European countries appear to be relatively large. For instance, publicly accessible information on the demand for electricity, the actual utilisation of cross-border interconnectors and the results of trading on the futures markets is not available or is only available to a limited extent in the Netherlands. This information is essential to market parties if they are to operate and compete on the electricity market.

Furthermore, it appears from DTe's research that the number of players on the electricity wholesale market increased in 2004. Compared to the low level in 2003, liquidity has improved. This is favourable for competition. On the other hand, it is possible that only a limited number of parties can satisfy the additional demand for electricity at moments of scarcity. To promote effective competition in the energy sector, it is important that there is sufficient trade and that a sufficient number of market parties can be active. Healthy competition between market players results in correct price formation. For this reason, DTe has advised the Minister of Economic Affairs to take a number of additional measures in the coming period to improve competition and liquidity on the electricity wholesale market, in addition to further implementation of the measures recommended earlier.

• DTe recommends promoting further coordination between TenneT and foreign grid managers to increase the available cross-border import capacity in the short-term and introducing the market linkage with Germany.
• DTe recommends auctioning import capacity (the capacity for transmitting electricity to the Netherlands) in smaller quantities and spread over the year to promote the trade in electricity.
• DTe recommends realising an imbalance market for gas in the short term which functions well. The point of departure in this regard is to increase the freely traded volume of gas on the liberalised gas market. To achieve this, buyers of gas must be in a position to purchase volumes of gas from Gas Unie Trade & Supply through the so-called TTF, a liberalised marketplace for gas.
• The opportunities traders have to cover their financial risks efficiently are an important condition for operating on the electricity market. DTe recommends close monitoring of the development of existing initiatives with regard to the provision of services to market parties to cover their risks (such as Endex). DTe will continue monitoring developments and in 2005 will ascertain whether the smaller market parties have also actively made use of market initiatives such as Endex.
• DTe recommends publishing more information about the OTC market and promoting international harmonisation with regard to transparency. Together with the market, DTe will examine the possibilities of creating more transparency with regard to the volumes traded on the OTC market.
• Accelerating access to trade in interconnector capacity during the day (intraday). Together with the Belgian (CREG) and French (CRE) regulators, DTe will ascertain the opportunities for doing so and will work these out in concrete terms.
• An amendment to the present maximum applicable imports by market parties using cross-border import capacity. The present maximum volume is 400 MW which applies to all market parties. As a result of the amendment, a distinction is made between market parties with and without installed production capacity in the Netherlands. The Minister of Economic Affairs and DTe must take the first steps in this regard.

Last year DTe also recommended auctioning the production capacity of the larger producers periodically on the market. This measure was examined in more detail in 2004. DTe will consult the sector on this topic.

The report 'Marktmonitor 2004, ontwikkelingen van de groothandelsmarkt voor elektriciteit 2004-2005' [Market Monitor 2004: Developments on the Electricity Wholesale Market 2004-2005] can be obtained from DTe's website.