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UK power market could switch from EFA calendar in 2014

04 Nov 2011 20:19:53 | edem


The UK wholesale electricity market could switch to traditional calendar-dated contracts from 2014, ditching the electricity forward agreement (EFA) calendar.

The Futures and Options Association (FOA) power trading committee is to recommend the change this week, in line with smaller trading desks' preferences and the lack of opposition from other participants.

Clive Furness, who sits on the FOA power trading committee, told ICIS Heren on Friday that the FOA announcement would likely be made ahead of the power traders' dinner on Thursday.

"We have heard from nobody that is violently against," said Furness, He added that if anyone is opposed, they will need to come forward quickly so their concerns can be heard.

Smaller trading houses are generally strongly in favour of the switch, although Furness added that FOA "can't make the market change". However, the position of the FOA as representing traders within the UK power market will make a recommendation hard to ignore for other market participants.

The 2014 date has been selected to allow market participants time to make the necessary changes needed to smooth the transition.

Boost to liquidity

A number of market participants have suggested that a change to calendar-dated contracts would be a quick way to address the liquidity problem in the UK market.

In February, a FOA survey found that more than three-quarters of UK power traders would prefer to switch to calendar-dated contracts, with some describing the EFA calendar as "simply archaic, difficult to understand and [creating] a perception that the UK power market was outdated and insular" (see EDEM 21 February 2011).

European trading houses have also stayed away from the UK power market, citing the EFA calendar as one of the barriers to entry. Mercuria managing director Bart Pycke told ICIS Heren in February: "The EFA calendar, the different contractual documentation and different scheduling systems all make the UK a more difficult market to enter" (see EDEM 9 February 2011). FOR

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