LONDON (ICIS)--Lack of details on a proposed compensation mechanism for Polish power suppliers which would enable the freezing of end-users bills could reduce far-curve liquidity on the wholesale market.
This is because companies are likely to refrain from taking long-term positions and instead buy power on a monthly basis just to secure supply for their existing customers.
Lack of clarity over the new amendments has already led to a decrease of sales offers on the retail market, leaving customers short of options.
As part of the proposed freeze on end-user prices, the energy ministry published proposals on how to calculate the average cost of electricity over a certain period which will then be used to establish the margin for each supplier, dependent on the total volume sold to end-users.
One fit for all?
Those calculations will also be used to establish any financial compensation to the supplier for the difference between the capped retail price and the actual wholesale price which tends to be higher.
The government is yet to release more details on the costs and formulas, but industry representatives have already warned that imposing one-fit-for-all formula to calculate the weighted average price and compensations for all suppliers, regardless of their size and portfolio, will be unfair.
This is because the supply arms of the big utilities which own generation assets, tend to offer lower prices to their retail customers which means that their weighted average price as well as the potential compensation might be lower than of those without generation assets with a smaller portfolio.
While the uncertainty has frozen activity on the retail market, it is unlikely to paralyse the wholesale market in equal measure because companies still need to buy power to cover the contracts signed before the proposals were first published.
But they are likely to refrain from taking long-term positions and instead buy electricity on a monthly basis.
“If someone has a base of clients, they have to deliver to because of previously signed contracts, they will still have to go to the wholesale market to buy. [But they] are likely to buy on a month-by-month basis,” mBank analyst Kamil Kliszcz said.
“The question is, how the prices [on the wholesale market] will be established during this time of uncertainty?, he added.
Data by exchange TGE shows that trading activity on the Polish front-year baseload product has slowed down so far in March compared with February.
With only a week before the end of this month, 5TWh of the Cal ‘20 contract have traded or nearly 44% less than in February.
“Suppliers do not want to offer energy to clients. And if they do not offer it to clients, they will not buy it on the wholesale market.
“It is a soap opera that has a key impact on the financial results of energy companies and the energy market as a whole,” a trader active on the market said.