(Montel) The European Commission's proposal for virtual power hubs could spell the end of the futures market in its current form, Danish TSO Energinet told Montel this week.
“It is incomprehensible that this is has been allowed to come so far. It worries me that the EC has only followed Acer's line without thinking about the short-term effects,” said Energinet's senior economist Jim Vilsson.
“It is an experiment that could kill the futures market,” he said, expanding on comments made earlier in the week.
On Tuesday the EC proposed setting up Nordic-style regional virtual power hubs to increase trading liquidity as part of draft market design reforms.
Vilsson said the proposed reform might scare away traders amid fears of unclear regulation.
The proposed scheme risked spreading liquidity across different hubs, which resulted in poorer price formation everywhere, he added.
While the EC was aiming to provide better hedging opportunities for all consumers, the proposal could therefore have the opposite effect, Vilsson said.
Temporary solution urged
The futures markets needed a temporary solution to current challenges and not a reform that would only function in 5-10 years, he said.
“Our markets may die in three years if we don't do something now, so a virtual hub in 10 years’ time won’t help,” he said.
Vlisson also noted that the TSOs were not involved in setting the regional benchmark system price, as this was controlled by power exchange Nord Pool.
“We currently have no responsibility for liquidity in futures contracts on Nasdaq, as these are financial products. The EU proposal implies that we will not only have a role in our own balancing market, but also in the virtual hub's liquidity,” he said.
The Nordic TSOs had several unanswered questions around this set-up, he added.
Power exchange Epex Spot has also warned against trading hubs.
“It is an experiment that could kill the futures market,” he said, expanding on comments made earlier in the week.
On Tuesday the EC proposed setting up Nordic-style regional virtual power hubs to increase trading liquidity as part of draft market design reforms.
Vilsson said the proposed reform might scare away traders amid fears of unclear regulation.
The proposed scheme risked spreading liquidity across different hubs, which resulted in poorer price formation everywhere, he added.
While the EC was aiming to provide better hedging opportunities for all consumers, the proposal could therefore have the opposite effect, Vilsson said.
Temporary solution urged
The futures markets needed a temporary solution to current challenges and not a reform that would only function in 5-10 years, he said.
“Our markets may die in three years if we don't do something now, so a virtual hub in 10 years’ time won’t help,” he said.
Vlisson also noted that the TSOs were not involved in setting the regional benchmark system price, as this was controlled by power exchange Nord Pool.
“We currently have no responsibility for liquidity in futures contracts on Nasdaq, as these are financial products. The EU proposal implies that we will not only have a role in our own balancing market, but also in the virtual hub's liquidity,” he said.
The Nordic TSOs had several unanswered questions around this set-up, he added.
Power exchange Epex Spot has also warned against trading hubs.
