EEX, Europe's biggest energy exchange, will continue to grow rapidly and is open to acquisitions in Europe and elsewhere, though big ticket takeovers in the region, Japan and the United States are effectively ruled out due to an already strong market position, its CEO Peter Reitz has said.
A planned EEX merger with Nasdaq's European power trading arm in 2024 fell apart in the face of competition concerns.
"We're always open for M&A transactions in any part of the world, including Europe, but obviously we already have a strong position with our venues in Europe, the US and Japan, so in that field there may be limited targets for acquisitions in the business," Reitz said.
Peter Reitz, Chief Executive Officer
"We have acquired adjacent businesses that help our growth in the core markets over time, and that's something we will continue to do, so we are open to further M&A activities also in that field," Reitz said, adding there was "nothing concrete" to announce anytime soon.
EEX saw growth of 63% in its main power derivatives market in 2024, with the fast clip continuing into January.
"We're quite optimistic that the growth trend that we've seen over the years will continue," Reitz said.
With the potential to convert over-the-counter (OTC) or privately traded contracts between banks, customers and brokers into on-exchange volumes now dwindling, Reitz said the main driver of growth in the coming years will be new customers and customer groups joining the exchange, including commodity hedge funds and algorithmic traders that significantly increase liquidity in the market.
"That's something all the existing customers benefit from, and it increases their opportunities of trading and their volume, so it's really helping the market get to a completely new level."
Russia's invasion of Ukraine in March 2022 triggered huge volatility and price spikes in Europe's energy markets as the region began weaning itself off Russian energy supplies.
A peace deal this year would help lower prices and boost competitiveness in the economy, Reitz said.
"It will have an impact on volatility and risk premiums that we see in the market, and so it will have an impact on price levels. You can already see that currently more in the gas market than in the power market," Reitz said.
EEX competes in Europe with the InterContinental Exchange (ICE) and pan-European exchange Euronext has hopes that its Nord Pool arm will give EEX a run for its money in the spot market.
"It's healthy competition and that keeps us on our toes, but it doesn't keep me awake at night because we have a very strong position in this market, having a great team that is very close to the customers, understanding their needs and developing the right solutions for it," Reitz said.
Market Deregulation
EEX's roots go back 25 years to a handful of people setting up the Leipzig Power Exchange with about 40 market participants focused on the German power market. Reitz joined as CEO in 2011, when the company employed about 120 people in just one location.
Fast forward a quarter of a century and EEX employs nearly 1,200 people based in 23 locations on five continents, and is the largest power trading platform in Europe, Japan and the United States with nearly 1,000 direct market participants in total.
"A lot of things come together when you see growth like this, and it all starts with the right regulatory environment we have," Reitz said, adding that deregulation of the energy market across Europe dismantled regional monopolies to trigger heady growth.
Another driver of growth has been the shift of trading from OTC to an exchange such as EEX, coupled with the contracts being centrally cleared, such as by EEX's clearing arm, Reitz said.
"When I started in 2011, about 10% of the trading in power was happening on exchanges and that has almost turned around completely. We're now closer to 90% exchange traded and cleared in some of our markets, and that has been a growth driver for us."
EEX's longstanding takeover spree coupled with the organic growth has seen the company expand enormously over the years, with two key transactions singled out by Reitz: the takeover of French power exchange Powernext in 2008 to bolster its footprint in the spot power market; and the acquisition of U.S. power exchange Nodal in 2017, turning the company into a major international player in energy.
Helping Green Transition
EEX is positioning itself to take advantage of different aspects of how economies are shifting to net-zero carbon emissions targets over coming years.
The exchange trades contracts under the EU's emissions trading system (ETS), a 20-year old set of rules that require polluters to pay for their greenhouse gas emissions. EEX provides a platform for auctions to sell emission allowances that companies must have if they want to emit carbon dioxide into the air. The EU contract is up for renewal in 2027.
As part of a post-Brexit 'reset' of relations with the EU, Britain is expected to link its own emissions trading market with that of the EU, and Reitz said this would help create a regional price for carbon as a step towards a global price, which remains a "long journey" given the need for political will in countries like the United States.
"A lot of things we do are helping to decarbonize the economy and setting a price for carbon is just one element of it," Reitz said.
EEX is also moving deeper into so-called guarantees of origin or verifying that a source of power is green so that it can be separately traded.
In mid-February, EEX introduced a Greek power futures contract to reflect that country's significant investments in renewable energy, with the contracts tailored to the length of sunshine expected a few hours or days ahead in a sign of how hedging has become supply rather than demand driven.
Reitz is also confident that another essential piece in the transition puzzle will be the use of hydrogen for storing energy longer than current battery technology can.
"We are positioning ourselves very early on in this hydrogen market, which is still in its very early stages. We've developed an index for green hydrogen and a trading platform for hydrogen, so it's something where we're just helping to get this market off the ground," Reitz said.
Reitz is a veteran by exchange industry standards, having stayed so long at the top of EEX.
"We've been building businesses together with our customers, and that is the secret to the success. If you have success, then you enjoy what you are doing and you continue doing it."
