“We seem to live in an age of political actionism. While tremendous efforts for the further development of the energy markets throughout Europe are under way on a European level, there are enormous backward trends at the level of the member states – now even in Germany. As an institution under public law, which also has a clear task set by the legislature, European Energy Exchange AG (EEX) simply has to comment to this“, Dr. Hans-Bernd Menzel, CEO of the Leipzig-based European energy exchange explains.
At the moment, EEX is exposed to vociferous and forceful attacks from political circles which generally hold the power exchange responsible for the high electricity prices. According to these circles, the pricing mechanism does not work, there is almost no transparency at all on EEX and EEX is not a true exchange but a cartel which needs to be broken up. These are the fundamental charges with which politicians from both the state and the federal level have been pushing in the press, in particular towards the end of 2006. In this context, it is those politicians that have not followed the invitations of EEX to inform themselves during a visit to the exchange that are appearing in public.
According to the CEO of EEX, this topic is debated very emotionally, frequently without substance. “It is not our task to investigate possible motivations behind such statements. However, it is clear that they can be dangerous“, Dr. Menzel explains and repeats the offer of EEX, which still wishes to make a contribution to an objectification of the discussion. “We stand by our invitation to all politicians to come and visit EEX and to obtain information on the function and the structure of a real exchange on site“, the head of EEX, who has invited ministers and representatives from departments relevant for the exchange to Leipzig several times throughout the last year; however, the measure has only been partly successful. On the other hand, the interest on the part of representatives at a European level was huge, according to Dr. Menzel.
It is common knowledge that the EEX pricing mechanism and, hence, the exchange price is recognized as a reference price for the wholesale sector without any restrictions – and throughout all of Europe. This price is established on the basis of supply and demand just like on every other real exchange. The mechanism is well known and is not seriously called into question by anyone. Even strong critics from the group of industrial consumers have acknowledged this by now.
Moreover, the alleged lack of transparency is not tenable either. “We are subject to more supervision than almost any other exchange in Europe and we publish far more information than is required by law“, Dr. Menzel comments, pointing to the diverse government and internal supervisory bodies with the Saxon State Ministry of Economic Affairs and Labour (SMWA), the Federal Financial Supervisory Authority and the Federal Cartel Office at the helm. Furthermore, the charge that EEX is a cartel also belongs to the realm of myths. “For example, every month there are more than 40 net sellers on the Spot Market, the majority from abroad, and over half of the trading on the Derivatives Market also comes from foreign trading participants. This clearly shows that we have a working market for all of Europe”, Dr. Menzel explains.
In addition, most of the points criticised by the political sector have been disproved time and again by various experts. In particular, the transparency on the exchange, which forms one of the main items criticised, is given a positive evaluation both in the socalled EU Sector inquiry and in an report by the Saxon State Ministry of Economic Affairs and Labour published recently.
Amendment of the Act against Restraints of Competition may herald break with principle of liberalized markets
The EEX states that there is a broad consensus regarding the quality of the pricing mechanism. For this reason, the planned amendment of the Act against Restraints of Competition is evaluated by EEX as being critical. Even if the amendment is not targeted at the exchange as such, it might have a considerable negative impact on the European wholesale market for electricity in general and, as a consequence, indirectly on the market place of the exchange.
Every day, roughly 160 trading participants from around 20 countries establish the undoubted reference price for wholesale trading on EEX as the largest power and energy exchange in continental Europe. This price also forms the decisive orientation for the market off the exchange. Under free competition it is the direct result of supply and demand. “This economic rule is jeopardized if possible administrative interventions have a subsequent effect on prices so far considered to be binding by contract by all those involved. Therefore, the envisaged ban on charging of fees “unreasonably exceeding costs“ is also of critical importance for EEX, since in a free market the costs of production of a given product must not determine its price and on the other hand it is still not clear what “unreasonably“ is supposed to mean, the European Energy Exchange AG states in a comment on the draft bill by the Federal Ministry of Economics and Technology on the amendment of the Act against Restraints of Competition (GWB). “Can a price established on an exchange which is subject to supervision be “unreasonable“ even though many trading participants are obviously prepared to pay that price every day? And what about those days and hours during which the commodity of electricity does not cost anything or during which it costs almost nothing? Is that unreasonable too?“, Dr. Menzel asks. And, finally, such interventions would not lead to more electricity being generated or savings potentials being realized.
In the view of the energy exchange this amendment may lead to a break with the principle of liberalised markets. Even though the example of France cannot fully be transferred to other countries, it impressively shows how sensitively markets can respond to interventions with a political motivation: When the French government announced the return to fixed rates for French industrial consumers at the beginning of May 2006, the trading volume on the French market slumped by more than 50 per cent.
“Moreover, the energy markets in Europe cannot be considered as isolated national markets“, Dr. Menzel points out. If the proposed amendment of the Act against Restraints of Competition is implemented, this might lead to a distortion of competition and Germany might become unattractive as a site for a joint European power exchange which is, on the other hand, an aim the political sector is clearly pursuing.
“Such a development cannot be in the interest of the German political sector“, Dr. Menzel notes, with astonishment.
Fortunately, the general readiness to obtain clarification and to establish profound specialist information through the use of expert knowledge in the form of expertises has also increased tangibly. “We think this is a positive development and support the qualified experts with data and know-how wherever we can“, says Dr. Menzel, reiterating this further offer of EEX.
