Polish power traders support TGE proposal to revive liquidity

19 April 2017 17:24 Source:ICIS

Increasing the share of power production that energy firms are obliged to sell via an exchange would revive the flagging Polish electricity market, according to several traders.

In March this year, volume transacted on Polish power exchange TGE, where wholesale electricity trading concentrates, totalled 7.7TWh, down 28% compared to March last year. In February this year, the year-on-year deficit was 42% at 6.3TWh.

Liquidity on TGE has decreased dramatically year on year since the start of this year, because of the expiry of an obligation on the country’s main sellers of power to place a set amount of volume on the platform.

Obligation

In Poland all electricity producers have a legal obligation to sell at least 15% of their power output via exchange.

Additionally, under another rule, the four biggest producers were required to sell 85% of their generation through long-term contracts via exchange.

But this 85% obligation expired at the end of last year meaning the main companies are now obliged to sell only 15% of generation via exchange.

In the case of Poland’s largest generator PGE, which generated just under 54TWh of electricity from all sources in 2016, this 15% would equate to 8.1TWh, around one-third of all volume traded on TGE’s day-ahead market last year.

The 85% that is no longer covered by the obligation, in the case of PGE alone last year, covered 45.9TWh.

State of liquidity

Deteriorating liquidity led TGE to launch a consultation last month, see here , asking market participants to comment on a potential increase in the obligation, in order to drive more volume through the exchange.

Four market participants trading for smaller, independent firms as well as companies with big assets told ICIS they were in favour of an increase to the obligation, on grounds it would bring back liquidity to the market.

“Increasing the obligation to at least 30% will definitely increase liquidity on the market. The current 15% can easily be covered by trading on day-ahead only,” a trader at one trading company in Poland said.

Traders said producers were now selling via bilateral deals more frequently, so the price is only known to the two counterparties that have agreed the deal.

This can have a negative knock-on impact on over-the-counter (OTC) volume as there is no exchange-based reference price and less need to hedge positions taken on exchange with OTC trades.

TGE remains the most liquid trading platform but a rise in volume could also translate into an increase in OTC trade by spurring more interest in hedging exchange positions.

None of the four companies previously covered by the 85% obligation, including PGE, Tauron, Enea and Energa, commented on the issue at the time of writing. karolina.zagrodna@icis.com

By Karolina Zagrodna