UK Power Trading
N2EX – The New UK Power Market N2EX, the UK power offering by Nord Pool Spot AS and NASDAQ OMX Commodities, was launched on 12th
January
2010. N2EX is a direct response to the Futures & Options Association (FOA) Request for Proposal (RFP) for the delivery of clearing and market services for the UK wholesale power market. It is designed to allow easy access to market for all those wishing to trade UK power. Its goal is to offer a well functioning liquid and transparent market, with the security of centralised clearing; producing a clear reference price from the underlying physical market to be used as a benchmark for new financial derivative products. The launch of N2EX in the UK means that through its
platform, members can gain access to the liquidity pool that is currently traded by the larger energy companies, utilities and banks, without the need for multiple Grid Trading Market Agreements (GTMAs), which can prove costly in both time and money. This gives members access to products previously unavailable to small market entrants and consequently encourages wider participation in the UK wholesale electricity market. The launch of the Day Ahead Auction
Management BV, have resolutely stayed out of the UK partly because of its lack of liquidity. N2EX has the benefit of being founded on strength and depth
of experience in electricity trading dating back over 15 years. With an established track record in the Nordic markets, Nord Pool Spot has been a pioneer in the field, operating the physical Nordic power markets since 1993, and is the leading spot power exchange in Europe. NASDAQ OMX Commodities is the market leader in international power derivatives and clearing services running Nord Pool ASA, the most liquid electricity derivatives exchange in the world.
Reviving Interest in Power Trading N2EX was chosen by the industry for the industry, which is
Market (DAM) further simplifies trading for members, specifically large industrial and retail customers, as it allows them to submit and shape their total demand for the next day in one go, whilst gaining access to the same transparent market prices used by the wholesale market. In addition, with the launch of the financial contracts, members benefit further by being able to hedge further out on the curve; thus further streamlining their business operations. Ultimately this benefits consumers, who have energy as an
input cost substantially impacting profitability – such as high- end industrials, processing companies and manufacturers. The marketplace initially launched with a Day Ahead
Auction Market and a Prompt Market. The DAM closes for entries at 09.30am on weekdays to cover the deliveries for the coming Electricity Forward Agreement (EFA) day. The Prompt Market provides an exchange-based trading platform as well as an automated clearing service for OTC trades. This covers EFA block contracts for delivery over a nine-day period. During 2010, N2EX will launch a Spot Market covering the closest 48 hours delivery period, and financially settled futures for UK power once a robust reference price has been established. The question being asked is how will N2EX succeed when
others before it have failed? Certainly, other markets have tried, such as London-based ICE Futures Europe, the first to set up a UK power futures exchange back in 2004, which failed to ignite the market. Many, like Dutch company, Energy Capital
worldPower 2010
N2EX was chosen by the industry for the industry
committed to supporting this initiative and providing volume to ensure its success. As a result, N2EX is quickly reviving interest in UK power trading and encouraging a wider range of participants among utilities, banks and hedge funds. Within the first three weeks of opening, N2EX traded £12.7 million worth of day ahead and prompt contracts, and had eight market participants. Since launch, total traded volumes have exceeded 1,530 GWh (April
2010) with 880 GWh traded in the prompt market and 650 GWh in the day-ahead auction. The value has exceeded £53 million. Importantly, the big six are already on board, and another
40 companies are in the process of becoming members. Members already consist of major utilities, generators, portfolio management companies, banks and large energy consumers, with more to follow. ■
Mikael Lundin is CEO, Nord Pool Spot & Geir Reigstad, Senior Vice President, NASDAQ OMX Commodities.
www.n2ex.com
Footnotes
1. British Electricity Trading and Transmission Arrangements (BETTA) were subsequently introduced on 1 April 2005, replacing the previous New Electricity Trading Arrangements (NETA) in England and Wales, and the separate arrangements that existed in Scotland and the British Grid System Agreement (BGSA).
2. EnronOnline was the first web-based transaction system that allowed buyers and sellers to buy, sell, and trade commodity products globally (with Enron). At its peak, over $6 bn worth of commodities were transacted through EnronOnline every day.
3. Britain entices power trading as Brown bemoans oil – Bloomberg, July 2009 by Lars Paulsson.
4. ’OFGEM to deliver an improved deal for small and independent electricity suppliers in wholesale markets’ (22 Feb 2010):
www.ofgem.gov.uk
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