European Power Trading at Record as Prices Plunged

Electricity trading in western Europe’s seven biggest markets rose to a record for a fifth year in 2009 as banks and utilities including Barclays Capital and E.ON AG bought and sold amid a 40 percent drop in power prices.

Volumes in Germany, the Nordic region, Britain, France, the Netherlands, Spain and Italy increased to 9,944 terawatt-hours from 9,929 terawatt-hours in 2008, London-based consultant Prospex Research Ltd. said in a report scheduled to be released today. They have advanced 21 percent since 2005, the data show.

European power prices plummeted as the global economy suffered its worst recession since World War II, damping demand. The first slump in volumes since 2003 in the Nordic region, which encompasses Denmark, Finland, Norway and Sweden, was offset as traders bought and sold more in Germany and the U.K.

“The trading business had a reasonably good year, considering the turmoil” in the world economy, Prospex Director Ben Tait said in a telephone interview from London yesterday. “A handful of the big banks have kept the market going because of their strong relationships with industrial customers.”

Utilities including Electricite de France SA and RWE AG (RWE) trade with banks such as Bank of America’s Merrill Lynch, which deal for industrial and financial clients and themselves.

Germany, E.ON

Volumes in Germany, Europe’s biggest power market, rose 5 percent last year, trading at a rate of about 8.4 times annual consumption, Prospex said. German demand was about 515 terawatt-hours in 2009. Prospex declined to specify volumes for individual markets. E.ON, Germany’s biggest utility, boosted its European power trading by 41 percent last year to 1,240 terawatt-hours, it said March 10.

The rise in liquidity during the economic decline was a “good sign,” Tom Sargent, director of power and emissions trading at Dusseldorf-based E.ON, said in an e-mailed statement. “This level of liquidity reflects the health of the wholesale market and the fundamental nature of commodities.”

Trading in Britain and Italy rose by 19 percent and 18 percent respectively. Spanish volumes increased 5 percent and the French market was unchanged last year, Prospex said. The Nordic region fell 14 percent and the Netherlands slid 7 percent.

The amount of electricity changing hands in the Nordic market was 6.7 times demand last year, down from 7.3 times actual physical consumption a year earlier. In the U.K. market 3.3 times demand was traded, compared with 2.7 times in 2008.

Over-the-Counter

Trading outside organized exchanges, the so-called over-the-counter market, last year regained volumes it lost in 2008. It accounted for a total of 82 percent of trades, compared with 71 percent reported by Prospex in its 2008 survey.

Brokers including ICAP Plc (IAP), GFI Group Inc. (GFIG), Tullet Prebon Plc, Spectron Group Ltd. and Tradition Financial Services compete for over-the-counter trades.

Power contracts in continental Europe are starting to get more complex, giving power stations, banks and electricity users more options to “lock into” prices, Sebastien Terryn, a risk manager at Summit Energy Inc. in Waregem, Belgium, said by telephone today. “An increase of financial institutions activities, a higher volatility in markets and more complex power contracts explain why trading volumes may be rising,” he said in an e-mail.

Power prices have become more “volatile in the last five years” so power producers and users need to better manage their risk on how they buy and sell electricity, Terryn said. The higher volatility follows higher price swings in U.K. natural gas markets. Britain’s depleting North Sea gas supplies means more gas must be imported through European pipelines and from liquefied natural gas producers, he said.

The average annual power price slid by more than 40 percent in Germany, the Netherlands, Spain and the U.K. last year, Prospex said. The average day-ahead price for Germany on the Epex Spot SE exchange in Paris fell 41 percent to 39 euros a megawatt-hour, according to broker prices on Bloomberg.

To contact the reporter on this story: Lars Paulsson in London at lpaulsson@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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