For the past 12 years Viviana Ciancibello, Senior Business Developer, Power Derivatives at European Energy Exchange AG, drove the increasing customer base for exchange traded carbon, power and commodities. In her current role she focuses on how Renewable PPAs and increasing merchant risk are affecting the risk management needs of players in the renewable energy industry. Here she talks to our COO and Co-Founder Luca Pedretti.
As an energy exchange, what market shifts are you observing and how are these impacting your core customer base?
Over the past several years, the change of the production mix towards renewable energy has emerged as the main driver of power market shifts and has evolved the trading behaviour across the global energy market. As renewable energy capacity has increased rapidly, particularly across Europe, this has resulted in two major impacts on our markets.
First, volume in EEX’s short-term power futures products such as Days and Weeks has significantly increased as traders adjust their positions according to price movements in the spot market, which has become more volatile due to the fluctuating nature of renewable energy generation feeding into the grid. Second, long-term agreements such as PPAs have changed the paradigm in terms of the maximum tenor that our clients are willing to trade. Previously, our clients would only trade until Cal+3 or Cal+4 even in our most liquid markets since this was enough to hedge their conventional power generation. Now, PPAs effectively create a price risk exposure which lasts much longer, up to 10 or 15 years or even more. So, in active PPA markets such as Spain, we have had strong demand from our clients to trade the full curve available on EEX, which is currently up to Cal+6.
To meet this demand and enable our clients to hedge even more long-term price risk, we are pleased to announce that EEX will extend the curve of our calendar year base load contracts for Germany, Spain and Italy to Cal+10 on 27 September. As of this date we will also publish daily price curves for those contracts which will be available on our website and should be an interesting price signal for players in the renewable energy industry.
The renewables market is transitioning from fixed revenues to merchant markets. What components do you see as being critical for market players to have in order to succeed in this new era?
First of all, it’s important for the market players who are new to dealing with merchant risk to educate themselves on the existing tools and products available to manage risk. Essentially, these players are entering the world of commodity risk management and there’s certainly a learning curve to fully understand the various elements that entails. This is a key reason why EEX has partnered with Pexapark as they do great work in providing Academies, in particular the Energy Risk Management Academy which covers the central requirements of building a risk management framework within a company. In addition, EEX German Power prices are now available to view on the PexaQuote platform, which we hope will help users to better understand the relationship between the wholesale prices as traded on EEX and the PPA indices provided by Pexapark.
Once the education is in place, each player must then decide on the tools they will use to manage their risk and power trading is one of the best, if not the best way to manage price risk. Establishing internal operations and capabilities to trade in the power markets will likely be a crucial part of success for renewable energy players going forward. This is a natural step towards renewable generation becoming the “new normal” and it’s quite exciting to be a part of this transition.
What does it take for the new players on the market, the renewable IPPs and renewable investors, to take part of the opportunities offered by liquid wholesale markets?
Participating in the wholesale markets is possible through several channels. One of the preferred ways we have seen newer players access our markets is through indirect access, which basically means they become the client of one of our direct exchange members. Many of our members and clearing banks provide client services which can range from offering bespoke hedging advisory, structuring, and trading, to straightforward Direct Market Access (DMA) where non-members can receive their own trading front-end and place orders on EEX products through the account of the direct member. It’s no secret that there are certain requirements around trading on exchanges which must be navigated by new players, such as dealing with collateral obligations and regulatory reporting. Also when trading via an intermediary non-members will still have to manage the collateral requirements involved in trading derivatives products and that will form a part of the agreement concluded with the EEX member.
Otherwise, if a company envisages having consistent trading volumes which merit direct exchange membership, this is achieved through our membership process. Either way, once traders have access to EEX the full suite of Power Derivatives products in 20 different European markets is available for them to trade including our first power product beyond Europe, Japanese Power Futures.
How do you plan to support the transition towards a decarbonized energy sector in making use of the liquidity and standard instruments EEX offers?
Sustainability is core to our company strategy and engaging with renewable energy players to bring them closer to our markets is a top priority, now and for the coming years. This is also why we are excited about the cooperation with Pexapark, as they have the expertise and know-how to bridge the gap between renewable energy players and EEX markets. Our first step in this direction is focused on education, and it has been great to see the positive response from this so far.
Going forward, we are working on other ideas and solutions to facilitate trading on standard products. This is certainly not limited to power. EEX Group engages in various initiatives supporting the energy transition and we’re convinced that market-based approaches provide key frameworks to handle the challenges around building a decarbonised energy sector and climate neutral economy. Our hydrogen working group, our environmentals product suite or our recently launched Zero Carbon Freight Index testify to how EEX is building and developing markets together with its clients by listening to their challenges and finding solutions.
EEX’s live power prices are now available on Pexapark’s PPA price reference platform. Sign up today and access for free our PPA price indices.