Corrected: Italian electricity traders face market coupling payment difficulties
(The article headlined “Italian electricity traders face market coupling payment difficulties“, published on 25 October 2013, incorrectly referred to Italy as being part of the central and west European (CWE) market coupling project. Italy is in fact involved in the central and south Europe (CSE) project. A corrected story follows.)
Limited access to credit could make it hard for some Italian electricity companies to trade on the coupled central and south Europe (CSE) Day-ahead electricity markets as payments for the capacity will need to be made just two days after delivery, a high-level trading source said.
In Italy, most of the electricity bought on the Day-ahead wholesale market is currently not paid until 60 days after delivery. However, in the coupled CSE markets, the exchanges are likely to use a billing deadline of two days after delivery, according to
Italy is planning to couple with the other markets in the CSE region by late 2014 or early 2015, a spokesman for Italian transmission system operator (TSO) Terna said. This would link the country to France, Switzerland, Austria, Slovenia and Greece. The CSE coupling tests are running smoothly, but no exact launch date has been set, the Terna spokesman added.
A key step in the process will be the alignment of settlement timings in the Italian market with the rest of Europe, the trading source said. Italian companies would have to start settling bills within a much shorter time frame than they are used to, and might lack the credit lines to do so, he said.
The low – and worsening – credit ratings of Italian banks could add to the difficulty of finding further liquidity in the European market, because financial institutions only provide credit to well-rated banks able to guarantee a return in times of financial crisis.
In fact, payment terms for spot market coupling was already an issue when Italy coupled with Slovenia in January 2011 ( see EDEM 29 November 2012 ).
Between 2011 and the end of 2012, the system worked under a temporary mechanism where Italy’s Terna and Slovenian TSO ELES acted as commercial counterparts in settling the payments for the electricity that was imported and exported between the two countries. It was up to the TSOs to advance the liquidity necessary to make the different payment time limits of the two markets compatible ( see EDEM 26 June 2012 ).
However, on 1 January 2013, the Italian regulator for energy AEEG opened a new scheme of payment through a fund for liquidity. This fund was made available to the Italian power exchange GME, which is using the liquidity available from the fund to pay Terna when Italy is importing electricity
However, no such scheme is planned for the future CSE market coupling for now, according to GME. AEEG was not available for comment at the time
Coupling price effect
The Northwestern European (NWE) Day-ahead market coupling project, due to go live on 26 November, would merge Italian cross-border Day-ahead trade with that of France, Germany, the UK, Austria, the Netherlands, Belgium and the Nordic and Baltic regions.
With the Italian electricity Day-ahead contracts tending to trade at a premium to other European markets, the net effect of coupling should be an increase in imports and therefore lower prices.
Traders expect the coupling to increase Italian exports at times when demand peaks in Germany and France. New gas-fired combined cycle turbines, as well as a large park of renewable energy, have emerged in Italy over the past 10 years, which means that Italian supply is flexible enough to export power.
However, sources agree the price impact will not be immediate, as it will take time to move trading towards the exchange because market coupling does not eliminate congestion.
So far, the existing coupling between the Italian and Slovenian markets has improved the price convergence in one-fifth (20.5%) of the hours on the exchange platform, according to GME’s annual report.
“The market coupling cannot guarantee to eliminate the existing economic differences between Italian and Slovenian prices,” the report states. Some 95% of the cross-border flows between the two countries trade under the coupling mechanism, while volumes have tripled since the launch in 2010, to an average 450MW per month, GME data shows. Lucie Roux
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