On September 4th, E.ON Energy Trading completed its first spot power trade at the BSP SouthPool exchange in Ljubljana, which offers products for the Slovenian and the Serbian markets.  Benedikt Messner, director of trading for Central and Eastern Europe, recently took some time out to answer questions about the company’s strategy for the region.

BM: It’s one of the areas we’re focussing on, but this is only a first step. The Central and Eastern (CEE) and South Eastern European regions (SEE), which include markets from Poland to Greece, are still quite fragmented. We therefore support every step to integrate these areas and create more transparent and efficient energy markets.  SouthPool is one of several platforms to emerge here and represents an interesting option for us.

BM: We trade all the CEE/SEE markets from Poland to Greece to take advantage of the market structure specific to the region, which has relatively small markets, a very diverse generation mix and demand patterns, but is well interconnected.  Developments in any of the 14 countries in the region can therefore have a significant impact on the price formation in any other country. In addition, good interconnection to Western European neighbours Germany, Austria and Italy offers a chance to explore country spread positions. We’re currently trading on four power exchanges and via a number of brokers.  We’re “market makers” at the Power Exchange Central Europe (formerly the PXE - Prague Power Exchange), which offers futures not only for the Czech Republic but also Slovakia and Hungary. The POLPX exchange in Poland is also important for us and with E.ON Polska we have an E.ON base in Warsaw. OPCOM, the Romanian power exchange, shows good development and the Greek Pool exchange is worth deeper analysis. In Romania, we also act as “market maker” via brokers. These trading platforms are important.  Not only do they act as marketplaces to bring regions closer together, but they also help to overcome trading obstacles by acting as interfaces between regulators and the wholesale markets.

BM: There are some positive signs. Most of the markets are getting more and more liberalized. Hungary and Poland, for example, recently abolished long-term power purchase agreements and are subsequently boosting market activity. In some jurisdictions, the energy law has been revised to offer access to non-local legal entities.  What’s more, trading data from the last couple of months show that the combined trading volume of the Czech Republic and Hungary exceeded that of Italy or Spain. We also see significant market development in the big countries, Poland and Romania. All of this demonstrates that there are clear opportunities for trading companies in the region.

BM: We still have to deal with a lot of so-called national champions and we’re some way off a level playing field. Also, some of the countries in the region are relatively small and have multiple borders.  Serbia alone has eight neighbouring countries. On the one hand this is an opportunity for a trading company, because you can leverage on price differences, but the complexity can act as a barrier to new entrants and this negatively impacts liquidity. That’s why any liquid power exchange with transparent market rules is a step forward and we actively support any developments in this direction. Increased volumes at exchanges will also help to reduce credit exposure and costs.

BM: Of course the crisis has been tough for the whole market, but the CEE markets have proven to be quite robust in the last few months. Ultimately, the effects of structural improvements to trading regimes in the region have more than compensated for the impact of lower risk appetite. As a result, trading volumes have increased significantly compared to last year.  As for E.ON Energy Trading, being the only multi-commodity player gives us have a competitive advantage in these complex markets. The crisis has also seen some market participants take the decision to outsource portfolio risk management to companies like us.