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European Energy Exchange AG (EEX) has managed to keep its growth rate on a constantly high level during the first half of the year 2007. During the period under review, the sales revenue remained stable on the basis of the considerably increased OTC clearing business, a significant increase in the number of trading participants as well as a positive development of the Spot Market for power and was, hence, able to cushion the effect of the decrease in the Derivatives Market for Power overall. On the other hand, as the leading energy trading and clearing platform in continental Europe, EEX once again managed to achieve an above-average expansion in its earnings situation. With sales revenue approx. on the level of the previous year at EUR 20.08 million (EUR 20.50 million), EEX reported earnings before taxes (EBT) which are more than 31 per cent higher than during the same period during the previous year at EUR 7.7 million compared with EUR 5.9 million.
OTC clearing, which achieved a growth in volume to 509 TWh during the first half of the year 2007 compared with 316 TWh during the first half of the year 2006, made a decisive contribution to the development of business which was satisfying overall. Whereas the Spot Market volume was increased by approx. 40 per cent to roughly 60 TWh compared with 43 TWh during the same period during the previous year, derivatives trading suffered a considerable slump to 99 TWh compared with 240 TWh as of the deadline of 30 June 2006, however. “Of course, we are pleased about the extremely positive development of our clearing activities which underlines our position as a leading energy clearing platform; however, at the same time, we have also had to register an enormous shift towards clearing to the detriment of trading“, Dr. Hans-Bernd Menzel, CEO of the European Energy Exchange, explains and, at the same time, he emphasises: “The fact that more contracts are concluded off the actual exchange and, hence, in a considerably less transparent area, gives cause for concern.” Mr. Menzel’s conclusion: “Measures aimed at strengthening exchange trading are urgently necessary“ – a statement which is not only directed towards EEX.
Sales revenue supported by OTC clearing
The development of sales revenue during the first half of the year was supported by OTC clearing, which registered a plus of 62 percent up from EUR 6.1 million during the previous year to EUR 9.9 million and which generated 49 per cent of the total sales revenue. At the same time, the sales revenue from the Spot Market for power increased by approx. 39 per cent to a total of EUR 3.9 million up from EUR 2.8 million, whereas, on the other hand, the sales revenue from derivatives trading for power reduced by more than one half to EUR 4.0 million compared with EUR 9.7 million.
Trading activities on the Spot Market for CO2 fluctuated quite strongly during the period under review, while the measures for a reinforcement of trading already displayed quite visible successes on the Derivatives Market during the first half of the year. “While we still registered a low development of volumes on the CO2 Derivatives Market during the last semiannual press conference, we can now look back on strong growth from April to June 2007“, Dr. Menzel, head of EEX, explains. However, trading in CO2 emission allowances and coal only made a minor contribution to the development of revenue overall. With regard to the other revenue (annual and training fees as well as information products) a slight increase to EUR 2.0 million up from EUR 1.9 million one year ago was registered.
Compared with the same period during the previous year, the number of trading participants increased strongly. The number of trading participants has increased by 17 per cent to a total of 172 trading participants which still come from 19 countries as had been then case during the previous year. In this context, the number of trading participants on the Spot Market increased by 17 per cent and the number of trading participants on the Derivatives Market increased by 29 per cent. The number of trading participants in OTC clearing increased by 77 per cent and the number of the general clearing members increased by 8 per cent. In this context, we have to emphasise the high number of British trading participants which rank second with a total of 24 trading participants licensed to trade on the exchange after Germany with 68 trading participants and before Switzerland with 21 trading participants. In the previous year, there were 20 licensed trading participants from Great Britain. “We have noted, in particular, a strong increase in the number of trading participants from the banking and financial service sector, which we attribute to a high degree of confidence in the safe and transparent exchange and clearing market of EEX”, Mr. Menzel states. EEX sees the open interest, the total of all open positions which amounted to 316 TWh corresponding to a value of EUR 16 billion as of 30 June 2007, as further proof of the high degree of confidence in the market. As of 30 June last year, the open interest still amounted to 255 TWh.
Successful co-operation between ENDEX and ECC
Even though this has not yet been fully reflected in terms of volume and revenue, the co-operation between European Commodity Clearing AG (ECC) and the Dutch derivatives exchange of ENDEX has developed very positively during the period under review. In March 2007, clearing of Belgian power futures was launched followed by clearing of Dutch power futures in June. In April 2007, ENDEX acquired an interest in ECC and with Baron van Ittersum, an energy and financial market expert highly respected internationally, it obtained a supervisory board member of great renown throughout Europe on 22 June. The co-operation with ENDEX resulted in a volume of 11.6 TWh of gas and 7.7 TWh of power during the first half of the year, with the revenue generated from said volumes amounting to EUR 215,000.
EEX embarked on a clear course towards becoming the European energy exchange
Since the model of achieving more flexibility, market coverage and volume by means of spin-offs and partnerships has proved viable and, hence, sustainable for the future on the basis of the example of the co-operation between ENDEX and ECC, EEX is now pinning its hopes on a further development of this model for its further course towards becoming the European energy exchange. This comprises a product co-operation with Eurex on the Derivatives and Spot Market for EU emission allowances which has already been announced and which aims at strengthening the presence of EEX on the London financial market, acquiring Eurex participants in order to stimulate the Derivatives Market and at establishing a leading market for emission allowances. In the framework of this forward strategy, which is supported by all executive bodies of EEX unequivocally, there are further spin-off projects which are being implemented speedily. For example, at first, the Spot Market for power will be hived off into an independent EEX subsidiary in accordance with the ECC model in the near future, and the Derivatives Market across all products will follow suit also with an independent EEX subsidiary in 2008. Both subsidiaries, which will be wholly owned by EEX at first, are open for co-operations, participating interests and partnerships of various characters. “We are convinced that this strategy provides us with the most profitable and promising solution for becoming t h e European energy exchange”, Mr. Menzel looks into the future proactively.
Strengthened market and customer orientation
The market and customer orientation which has now been sustainably strengthened constitutes an essential milestone on EEX’s path towards expansion in Europe. In this framework, exchange trading in gas on EEX which was launched on 2 July of this year is developing positively. As early as during the first two weeks of trading, significant trading transactions were settled on the Spot Market of the BEB market area and in the Derivatives Market segments for the BEB and E.ON Gastransport market areas. So far, 26 trading participants have been licensed for the Gas Market on EEX of which six companies are active as so-called market makers. “The development of volumes on the gas market exceeds our expectations in this new market segment during the first weeks of trading“, Maik Neubauer, member of the management board and COO of European Energy Exchange AG, comments. “And even if sales still display a high volatility, we have very positive expectations as regards the further development of the gas exchange“, Mr. Neubauer is pleased. On 1 October, EEX will launch spot trading within the market area of E.ON Gastransport, in addition, which should safeguard further increases in sales.
Within the trading segment regarding CO2 emission allowances, EEX is currently preparing a co-operation with Eurex AG. This aims at the development of a joint, internationally aligned trading segment for trading in emission allowances on the basis of the European emission trading system (ETS) but also in project-based emission allowances which are created on the basis of the Kyoto Protocol. “By means of this cooperation, a trading segment will be created in which we will bring together trading participants from the financial sector and the energy sector, which are active on an international level, on a multi-product platform for trading in emission allowances”, Mr. Neubauer explains further.
As of the end of July, the further internationalization of EEX AG will be continued by means of a special team dedicated to the English and western European market. The strategy towards internationalization pursued by EEX will also be supported by a new distribution organization which is to support the trading participants on EEX both in the European regions and, based on the main business model of the customers, in the field of the products of power, gas, emission allowances even better in the run-up to trading as well as in the course of the trading activities on EEX.
Annual result on the same level as during the previous year
The second half of the year 2007, which has not displayed any significant changes as regards trading and OTC volumes so far, will be characterized by comprehensive projects and investments associated with these not only in view of the complex setting. “These projects will cost money at first“, Mr. Menzel restricts the horizon of expectations for the entire year and emphasises that the result achieved during the previous year will be repeated this year nonetheless and that any profits generated beyond that will be reinvested in future projects.
