European Commission proposes major change to long-term electricity markets, traders oppose it

The European Commission’s proposal to reform the energy market includes a change that could significantly affect how electricity is traded on long-term markets in continental Europe. However, key players in the electricity market—including traders, exchanges and transmission system operators—oppose the change.

Under the Commission’s proposal, a so-called hub would be created, similar to those found in Scandinavia. The hub, proposed by ACER in its paper proposing changes to electricity forward markets, would work alongside products for hedging transmission rights in individual bidding zones to provide better hedging options for generators and suppliers in countries whose markets suffer from low liquidity. Austria is one example.

The main idea behind a hub, or virtual trading point, is to bring together supply and demand from less liquid bidding zones. This would allow traders in those zones to trade in a market with higher liquidity than their own.

“Virtual nodes should reflect an aggregate price from multiple bidding zones and provide a reference price that market operators should use to offer forward hedging products. … By providing a reference price index, regional virtual nodes should enable liquidity to be pooled and give market participants better hedging options,” the Commission’s document states.