Austrian power futures market grows but OTC trade limited

Author: Roy Manuell

2019/07/01

by Roy Manuell

Austrian market maturation ‘remarkable’ - EEX

Trend not reflected in OTC trading

Relaxed Austrian-German spreads indicate price confidence

LONDON (ICIS)--The development of the Austrian power market has been “remarkable” in 2019 following the bidding zone split of the joint German-Austrian day-ahead market zone at the EPEX SPOT exchange on 1 October 2018, Steffen Riediger, head of European power derivatives at the European Energy Exchange (EEX), told ICIS.

However, analysis of trade data indicates that increased exchange interest has not been translated across to the over-the-counter (OTC) market.

BOOMING EXCHANGE VOLUMES

“From our perspective, the volumes on the Austrian derivatives market since the split have been remarkable and we definitely expect this to continue over the next year,” Riediger said.

The vast majority of volumes traded on Austrian futures last year came during the fourth quarter, following the split.

Volumes traded so far in 2019 look set to surpass the 2018, Riediger added.

CROSS-BORDER HUB

“The Austrian market offers a perfect example of cross-border trading. It’s right in the centre of Europe.

“We’re seeing more and more players coming onto the market every month. Not just German and Austrian, but many international participants as well,” he said.

Riediger compared the growth in Austrian exchange volumes to those in Switzerland as evidence of its market maturity.

Between January and June, around 3.2TWh were traded on the Swiss market. To compare,  the Austrian total was approximately 5.6TWh.

OTC MARKET

However, participants have not registered any significant increase in OTC physical curve trading.

“I would even say that there is not really an existing market,” one trader told ICIS on Thursday.

The German-Austrian spread is rarely traded, he added, though when it does change hands, prices are relatively stable.

Traded volumes on the OTC Austrian Cal ’20 Baseload have been consistently below that of the Swiss market in 2019, ICIS trade data showed, indicating that the exchange surge has not crossed over the counter.

STABLE SPREAD

The current front-year Baseload spread to Germany was valued at a €3.60/MWh Austrian premium on 27 June, ICIS trade data indicated. For comparison, the two products traded at a €3.70/MWh Austrian premium on 29 March, three months earlier.

A more consistent spread between Austrian and German prices is indicative of greater market confidence in the pricing of the Austrian product. This may reflect greater market maturity, despite few recent signs of OTC liquidity ramping up.

There is also evidence of reduced price spread volatility in 2019 between the German and Austrian Day-ahead contracts which had been seen during the first three months following the split.

The Austrian spread to Germany has significantly narrowed, due in part to a comfortable hydro situation , but also the maturation of the Austrian market, some participants have told ICIS.

Exchange outturns show that spikes in the spread between the two markets have relaxed in 2019, even on days of high German wind output, often the cause of very wide price spreads between German and Austrian Day-ahead products.

“Players were guessing at the beginning of the market, just after the bidding zone split, but now they seem to have a consensus,” Riediger commented.