Exchange Council backs the use of EEX Standard Power Contracts for PPA hedging

European Energy Exchange

On Wednesday, 27th June, the constitutive meeting of the new EEX Exchange Council was held in Leipzig. At the meeting, the members of the newly elected Exchange Council re-appointed Dr Michael Redanz, Managing Director of EWE Trading GmbH, as their Chairman for a further term.

The members also elected Dr Bernhard Walter, Head of Market Design and Regulatory Affairs at EnBW AG, Andrea Siri, Head of Power Origination at Edison S.p.A. and Jens Göbel, Head of Power and Emissions Trading at eni Trading & Shipping S.p.A as Vice-Chairmen. The election for the new EEX Exchange Council was held on 30 May 2018.

During the meeting, the Exchange Council discussed how to combine the increasing need for long-term hedging of power prices (PPAs) with already existing standard EEX products. The concept of PPAs has become a key mechanism used by renewable energy developers to secure financing for building new assets. In many cases PPAs are now required to be in place prior to banks providing financing for new ventures such as a new wind park or solar farm. The tenor of a PPA must usually also match the repayment term of the loan.

In order to mitigate counterparty risk and secure long-term cash flows, EEX already offers cleared cash-settled futures contracts up to 6 years ahead in all major European power markets. This constitutes an important value-added service for PPA counterparties. Market participants who enter into long-term PPAs can register a strip of cash-settled calendar futures of up to 6 years in advance for clearing with EEX. This combines the need for long-term price hedging with the security of the counterparty risk mitigation through the ECC clearing house as well as the deep liquidity pool of EEX’s power derivatives markets.

EEX has noticed a strong increase in demand for such cleared long-term contracts recently. In the past 4 weeks alone, strips of calendar contracts up to calendar year 2024 have been registered in Spain and Germany with a total volume of 2.9 TWh. The Exchange Council encouraged EEX to further extend the existing offering by listing additional yearly expiries.

The Exchange Council also discussed the recent upswing in Emissions and was very encouraged by the positive development trends emerging in options. In recent months, EEX and its partner Incubex have successfully developed the EUA options business resulting in a market share of 23% on the emissions secondary market in June this year.

Historically, EEX offered EUA Dec options as most of the liquidity was concentrated in December. However to meet client demand, the Exchange Council agreed to the introduction of further expiries in EUA options. In addition to quarters, monthly expiries will also be introduced in order to create a more flexible offering which will further differentiate EEX’s product portfolio from its competitiors.

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