Thursday 17 December 2015

Polish Power Exchange introduced future contracts for electricity (+ description of a standard contract)

At the beginning of November (2015), Polish Power Exchange ( in Polish: Towarowa Gielda Energii, TGE) introduced trading of futures contracts for electricity. The introduction of future contracts to the Polish Power Exchange was based on the decision of Ministry of Finance from February 23, 2015 which authorized trading derivatives on commodities on the Market in Financial Instruments ( Polish: MiFID), which will be run by the Power Exchange.

The difference between the new instrument and the instruments traded so far, lies in the fact that the transactions will not be limited to a physical delivery of energy, but its financial settlement. This means that the transaction does not impose physical exchange of electricity.

The introduction of future contracts on the Polish Power Exchange is a natural development of the market place. It is one of the most dynamically growing exchanges in Europe, with a continuous increase of turnover on the annual basis. With the more traded volumes each year, it was necessary to introduce an instrument that would mitigate credit risk and improve market liquidity.

Trading takes place during the working days (Monday – Friday) from 8:00 (opening of the session) to 14:00 (closing, publication of prices).

Introduction of financial instruments to the energy trading has numerous advantages to the Polish power market, such as possibility of hedging against unfavourable changes in prices, mainly by the large players on the power market (via derivatives). It stabilizes the market and:

Enables secure buying and selling prices electricity over a longer time horizon, without taking positions-volume
Allows ease of management, minimizes risk of changes in energy prices
Increases the liquidity of the entire market, through interaction with the spot market
Contributes to the further development of independent power retailers

The total volume of traded futures contracts for electricity in November was equal to 1 488 MWh which was below expected level. In the same time, based on the example of other European countries introducing financial instruments to the power exchange, seeing an opportunity in such trading takes time and probably will “take off” later in 2016. In the same time, to avoid unnecessary costs and avoiding potential complications, Polish Power Exchange to postpone introduction of future contracts for gas trading, from the end of 2015 to the second half of 2017.