European Power Trading Falls a Second Year as Banks Drop Out

Power trading in western Europe’s seven biggest markets shrank for a second year in 2012 as banks and utilities, including Deutsche Bank AG and EON SE, reduced trading activities.

Volumes of electricity bought and sold in Germany, the Nordic region, the U.K., France, the Netherlands, Italy and Spain fell 12 percent to 8,534 terawatt-hours in 2012 from a year earlier, London-based consultant Prospex Research Ltd. said in a report to be published April 29. That’s 22 percent lower than a peak of 10,925 terawatt-hours in 2010.

“A number of banks reduced their trading activity as part of their retrenchment in difficult times for the financial industry,” Prospex said. “This hit the market hard as banks had become important players in European power trading.”

Banks from Barclays Plc in London to Deutsche Bank in Frankfurt have shrunk their energy trading or shuttered units because of tighter regulation in Europe and the U.S. after the financial crisis. Lower volatility made trading for hedging and speculation less attractive for utilities as rising output of renewable energy erased price spikes, Prospex said.

The amount of power bought and sold in Germany, Europe’s biggest power market, fell 17 percent last year, or to 7.1 times annual consumption. The so-called churn-rate was 5 in the Nordic region and averaged 3.4 in the seven markets, according to Prospex.

Short-Term Trade

Over-the-counter volumes slid 18 percent last year, the biggest decline on record, to 5,825 terawatt-hours. That’s 68 percent of the region’s trading. Contracts bought and sold on exchanges fell 6 percent to 1,542 terawatt-hours.

“I don’t see how this trend is going to be reversed,” Konstantin Lenz, managing director at Lenz Energy in Berlin and a power market analyst for more than 10 years, said by phone from Berlin today. “Due to the expansion of intermittent renewable energies, the market’s focus has moved to short-term trading where smaller volumes are moved compared with trade in quarterly or yearly contracts.”

Short-term contracts rose 14 percent to a record as the share of renewables capacity connected to the grid rose, Prospex said.

Germany’s renewable power output rose 10 percent to 136.2 terawatt-hours last year, according to AG Energiebilanzen e.V., an association of German energy lobbies and economic research institutes.

EON’s power trading volume slid 23 percent last year to 1,402 terawatt-hours, the Dusseldorf, Germany-based company said March 13 in its earnings report.

“In early 2013 there have been some high volume periods which suggest the year as a whole may be better than 2012,” Prospex said.

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