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  • “A uniform price zone is important for a functioning market.”

    The European Energy Exchange (EEX) is Europe’s leading energy exchange. In the interview Chief Executive Officer Peter Reitz explains the challenges which European energy policy raises for the exchange.

    Profile:
    Peter Reitz (54) has been the Chief Executive Officer of EEX and of European Commodity Clearing (ECC) since 2011. EEC ensures the clearing of all handled transactions. After gaining a degree in mathematics, Reitz started his career as a product manager at Deutsche Börse AG in Frankfurt, where he holds the position as Managing Director – also after moving on to EEX – since 2004. From 2000 to 2001, he worked at Dow Jones Indexes in New York and later became a member of the Eurex Management Board until the end of 2018. Peter Reitz has overseen the development of the EEX and ECC as a member of the respective Supervisory Board since 2007.

    Mr. Reitz, the energy transition divides Germany into proponents and opponents. What does this transformation mean for the business on the EEX?
    The effects on our business have been mostly positive so far. We see ourselves in the role of shapers of the energy transition who realize innovations from and with the market. Today, on the spot exchange market for electricity, for example, quarter hours are traded up to five minutes before actual delivery, and that on 365 days a year, 24 hours around the clock. These are market standards which have evolved from the market without any need for regulatory requirements.

    The European Parliament has just established new rules for the design of the electricity market which seek to put the consumer “at the center of the energy transition”. At the same time, consumers are confronted with constantly rising electricity prices. How can this be explained?
    Germany, after Scandinavia, has the lowest prices on the wholesale exchange market, but on the other hand the highest retail electricity prices, for both private customers and industrial consumers. The reason is definitely the level of the non-market, government-induced price components. Policymakers must take specific action here, for example by reducing the EEG (RES) surcharge or the electricity tax.

    The aim of this European legislation is also to reconcile climate policy targets with supply security through a common framework for capacity mechanisms. Will this succeed?
    I am basically skeptical about the mixing of targets in single instruments, but rather a friend of the principle, “one target, one instrument”. For climate protection, emissions trading is the right instrument. For security of supply, it is the energy-only market, i.e., a market on which only the power actually produced is paid for, and, provided member states consider it necessary, capacity mechanisms as supplement.

    What are the concrete effects of the energy policy measures on the EEX?
    One example is the question how bottlenecks in the electricity grid and, as consequence, the bidding zones in the electricity market are dealt with in Europe and the member states. The EU Commission and a few member states prefer the approach of adjusting the bidding zones for trading to the physical conditions in the grid. However, that would call the basis for trading into question. That in turn would lead to uncertainty among the market participants and is poison for trading. In Germany, the overwhelming majority of the players in the energy sector and the political community see it as we do, namely, that a uniform German price zone is important for a functioning market with meaningful price signals and high liquidity.

    “Electronic trading and maximum security and integrity constitute the business model of exchanges today.”

    The electricity system in Europe increasingly will be shaped by renewable energies. The EU target for the year 2030 specifies that about 50 percent of power generation should come from renewable sources then. What impact will this have on trading?
    Trading already has done a great deal to integrate the renewables in the market and has profited from new business models like direct marketing. Certainly, short-term trading for the purpose of coping with fluctuations will gain more importance. But I also see opportunities for the futures market. For example, when in future more and more renewables-based generating installations without EEG support, that is to say without guaranteed feed-in remuneration, come on the market, or when the support for older systems ceases after 20 years. In both cases the operators must then finance themselves through the market and hedge their risks.

    The CO2 market is another important pillar of your business. With the EEX you are the central auction platform for the entire EU. How will the trade in emissions certificates develop in future?
    CO2 pricing is one of the dominant topics of climate policy. I assume therefore that the importance especially of emissions trading will increase – both at the European level and worldwide. In Germany, national emissions trading now is being introduced for fossil fuels. At EU level the debate has just begun on how something similar can be implemented on a European scale. Of course, we are keeping track of these developments and are ready to put our experience and infrastructure to work to assist in the implementation.

    The energy market is undergoing restructuring; there is a trend towards decentralization. Is this also reflected in your trading activities?
    Definitely. We see this very directly in the growing market participation also of small players. I assume that this development will continue, for instance in the case of RES systems which as of the coming year gradually will cease to be supported. Instead of feed-in remuneration and marketing by the grid operator, the system operators will have the market to deal with and are faced with the question whether they should make use of a service provider or – provided they are large enough – become active themselves in marketing.

    The buying and selling of electricity is changing more and more from long-term trading to short-term trading. How are you dealing with this trend at the EEX?
    It is true that the significance of very short-term trading, i.e., of the intraday market, is increasing further. However, at the same time we also observe that the importance of long-term hedging on the futures market is growing. Accordingly, in the course of this year we will extend the long-term maturities from currently six years to the end of this decade, to 2029. This offer of long-term risk hedging will be an important building block in future for the necessary investments – be they in non-subsidized renewable energies, in flexible gas-fired power plants or in storage units. In our Spanish power derivatives market, today we already observe that long-term contracts for renewables additionally are secured with long-term trading transactions through the exchange. This may also become a model for Germany.

    Due also to the proliferation of renewable energy, electricity trading takes place at an increasingly faster pace and is becoming more demanding. Algorithms long since determine the decisive steps. How do you ensure that these millions of data are handled and traded securely and without undue influence of third parties?
    Electronic trading and maximum security and integrity constitute the business model of exchanges today. In this respect we are no different from the financial market. At bottom, we are half IT company precisely in order to ensure this.

    Mr. Reitz, thank you for the interview.

    European Energy Exchange (EEX)
    The European Energy Exchange (EEX), located in Leipzig, is the leading energy exchange in Europe. As part of EEX Group, a group of companies serving international commodity markets, EEX offers contracts on power, natural gas and emission allowances as well as freight and agricultural products. In addition, EEX offers registry services and auctions for certificates of origin. The EEX has around 300 trading participants, among them German and European energy companies, banks, industrial enterprises, public utilities, direct marketers and brokers.