Changes at intra-day

Nord Pool and the European Energy Exchange are going head-to-head in an effort to deliver intra-day trading to Germany's power market. Oliver Holtaway investigates

Two major exchanges both launched intra-day trading platforms for German regions on September 25. Nord Pool did so by extending its existing Elbas intra-day power trading system, which already serves Sweden, Finland and eastern Denmark, into Germany's Kontek bidding area. The European Energy Exchange (EEX) meanwhile, launched an all-new intra-day trading platform covering all four of Germany's bidding areas.

In the day-ahead market, traders buy and sell megawatt hours (MWh) of electricity for the next day. In Nord Pool's Elspot day-ahead spot market, for instance, bids and offers for megawatt hours for Tuesday are closed at noon on Monday. The bids and offers are fed into an algorithm that then determines a system price for each hour.

As a result, there will be a gap of at least 12 hours, and up to 36 hours, between the closing of the auction at noon and the delivery of the megawatt hours the next day. This can cause problems if unforeseen events, such as production outages or demand surges, take place during that period.

Intra-day trading allows market participants to buy or sell megawatt hours up to an hour prior to delivering or receiving the contracted megawatt hour, enabling them to react to short-term fluctuations in supply and demand. For example, if a power station sells electricity in the day-ahead market, but suffers an outage in between the day-ahead deadline and delivery, it can use the intra-day market to buy power to cover its position.

In the absence of intra-day markets, most European power traders at present rely on balancing markets, run by transmission service operators (TSOs) to adjust their positions. The precise market design and method of allocation varies from TSO to TSO, but balancing markets are generally considered to be less efficient, less transparent and more expensive than intra-day markets.

The contenders

Traders in the Kontek area of Germany, controlled by Vattenfall Europe Transmission, can now use Nord Pool's Elbas intra-day market to trade megawatt hours up to 75 minutes before delivery.

"Elbas is an addition to the Elspot market," says Asmund Drivenes, marketing manager at Nord Pool. "It's an optimisation tool that allows traders to make adjustments. If producers have sold production on Elspot, for example, and there is a failure at the plant, they are short and can fix this on Elbas."

Volumes on Elbas have doubled since the system was extended to Germany, says Kenneth Dupont, sales manager at Nord Pool, but there is room for more growth: "It's a success, but it's not good enough!"

Drivenes expects volumes to grow once Elbas is rolled out across the whole of Germany. Nord Pool must first wait for an automated reporting system to come into place – at present, traders looking to move power across different German TSOs' regions would have to confirm with each TSO by phone. But once the automated reporting system comes into place on January 1 next year, Elbas will be able to extend across Germany.

Nord Pool faces competition from EEX, however, which has launched a competing intra-day platform. EEX's intra-day platform is also designed to complement its existing day-ahead spot market for electricity, which covers all of Germany. The platform allows for both anonymous electronic trading and the registration of over-the-counter trades up to 75 minutes before delivery on the same and the next day.

Drivenes acknowledges that EEX is a competitor: "They are talking to the same people as us." He also believes that eventually, there will be one winner in the intra-day market stakes – and hopes that Nord Pool's strong track record in intra-day trading will prove a competitive advantage.

EEX spokesman Daniel Wragge welcomes the competition, however: "Competition is good! If other exchanges establish similar products to us, then the product must be quite good. The future will show which one will be preferred by the market, and whether both will survive."

Despite being a newcomer to intra-day trading, EEX holds an advantage in the German market simply because it covers all four TSO areas. Furthermore, each of EEX's 135 spot market participants are also enabled to do intra-day trading. So far, 86 of them have been granted access to the intra-day system – compared to just 11 participants on the Kontek area of Nord Pool's Elbas.

It's difficult to make a meaningful comparison of intra-day trading volumes between the two exchanges, given that the two systems cover different territories, overlapping only in the Kontek area. By mid-November, EEX's intra-day market was topping 12,000MWh of traded power per week. The overall volumes for the Elbas system during the same period were at around 22,000MWh per week. Both exchanges say that they are pleased with the intra-day volumes seen so far.

The market will eventually decide which exchange emerges triumphant – but for now, most are happy just to welcome the spread of intra-day power markets into Germany.

"Well-designed intra-day markets will enhance liquidity and market efficiency and allow market participants the flexibility to adjust and close their positions as close to real-time as possible," says Edith Hofer, advisor to the market unit of industry association Eurelectric.

"The most important thing is getting power trading as close as possible to real time," she adds.

There are also other initiatives currently in place to promote cross border intra-day trading in Europe. The North-West European Market Parties Platform – which represents wholesale power market players from Germany, France, Belgium, Luxembourg and the Netherlands – published a briefing paper in June calling for a continuous cross-border intra-day platform to be established between the five countries.