EU Commission – Liquidity and Efficiency of Wholesale Energy Markets
In 2008, Moffatt Associates was commissioned by DGTREN to carry out a major study of EU wholesale energy markets.
The objectives and outputs of this study were:
- A quantitative analysis of historic and current trading contracts, volumes and prices (electricity, gas and CO2) for relevant EU regional gas and power markets, including an evaluation of the changing relative importance of energy exchanges, OTC trading and bi-lateral long-term contracts.
- A quantitative and qualitative analysis of current market expectations relating to likely future traded volumes of gas and electricity, covering energy exchanges, OTC trading and long-term contracts.
- A qualitative and where possible quantitative analysis of the current political, economic and institutional factors encouraging or inhibiting the growth in traded volumes and market liquidity, with particular emphasis on weighting the relative importance of barriers to improving wholesale market liquidity.
- An analysis of the factors impacting on the trading and financial relationship between the prices of different contracts and products (electricity, gas, CO2, coal and oil) For example, the potential for de-coupling of the wholesale gas and oil price and the convergence between CO2, gas and electricity prices.
- A qualitative and where possible quantitative analysis of the likely impact on wholesale market liquidity, price formation and market efficiency of more disclosure of physical and financial data, with particular reference to the likely impact of the transparency measures currently proposed by the EU commission and ERGEG.
- An analysis of the efficacy of regulatory action to control wholesale market abuse and what market information would be needed to enable regulators to intervene effectively to determine or prevent market abuse.
- An analysis and recommendations on how best wholesale market liquidity and efficiency could be improved, with particular emphasis on the possible role and effectiveness of a) more legislation, b) more regulation and/or, c) greater co-operation between all market participants.
To execute this study Moffatt Associates conducted what is probably one of the most extensive surveys of energy market participants ever undertaken.
This involved:
- In-depth interviews and discussions with (20) senior executives representing all relevant stakeholder associations
- Nine focus groups held in Brussels, Milan, Madrid, Copenhagen, London and Vienna, involving a total of 113 market participants
- An online questionnaire to obtain quantitative responses – a total of 150 market participants completed the questionnaire
EU Commission – Ownership Unbundling and Market Transparency
In 2007 DG TREN commissioned Moffatt Associates to conduct a detailed market research programme to assess the likely impact of the Commission’s proposals relating to TSO unbundling and improved wholesale market transparency.
Objectives of this study were as follows:
A. Ownership Unbundling
- Impact on non-discriminatory access on tariff levels and price information transparency
- Subsequent impact on the increase in competition in both generation and supply
- Required conditions and propensity for unbundled TSOs to
(a) increase levels of investments in improving the quality of the network,
(b) increase investment in cross-border capacity,
(c) work with other TSOs to create regional networks, and operate in such a way that would reduce or eliminate the need for new pan – European regulator and reduce or eliminate the need for heavy national regulation relating to network tariffs and investment incentives
- Potential benefits to the incumbent of selling network assets – in terms of either returning funds to shareholders and/or channeling new investment into higher margin non-regulated generation and supply businesses locally and/or in other territories in the EU and elsewhere
B. Market Transparency
- Relative importance and significance of different data in terms of its value in promoting liquidity and competition in different regional markets
- Type, timing and sourcing of data required in both gas and power by regional market – i.e. including exchange, TSO and OTC data
- Whether it would be better to opt for high mandatory minimum standards across the whole of the EU from day one or opt for variable benchmarks and a regional incremental approach with Nordpool and the UK leading the way
- Whether most benefit could be secured in the short term by opting to prioritise transparency in power rather than gas
In a period of less than 5 weeks, Moffatt Associates were able to complete a total of 56 in-depth interviews with key participants in the EU energy market including:
- stakeholder associations
- energy market regulators
- TSO network operators
- financial investors
- energy exchanges
- dominant incumbents
- market traders
- market analysts
Our conclusions were included in the EU Commission’s Background Paper accompanying the 3rd Package Directives
