Broker Share of European Power Trading Fell to Record in 2013

The share of the power market handled by brokers declined to a record last year as the proportion bought and sold on exchanges rose.

Over-the-counter trading accounted for 65 percent of total electricity volumes from as much as 75 percent in 2009, London-based consultant Prospex Research Ltd. said in a report to be published tomorrow. Exchanges increased their share to 20 percent, a record high, from 15 percent in 2007.

Trading has been damped by banks scaling back their activities in European power markets since 2012 and compounded by utilities reducing their operations. Power prices in Germany, Europe’s biggest economy, declined by 19 percent last year, the biggest annual drop since at least 2002, reducing trading opportunities.

“Volatility has not been very high,” Prospex said. “For hedgers, this reduces the perceived need to trade and for speculators, it means fewer opportunities to make big profits on trading bets.”

The volume of electricity traded in Germany, the Nordic region, the U.K., France, the Netherlands, Italy and Spain gained 1 percent to 8,628 terawatt-hours in 2013 from a year earlier. That’s the first increase since 2010 and 21 percent below the peak of 10,924 terawatt-hours in 2010, Prospex said.

The German and Nordic markets were the most active as contracts changed hands an average 7.2 times in Germany and 5.7 times in the Nordic region before electricity was delivered physically. The Netherlands and France have the least liquid power markets in Europe, Prospex said.

Exchange Volumes

Exchange-traded volumes rose by 11 percent to 4,622 terawatt-hours, boosted by a 14 percent increase in forward contracts to 1,763 terawatt-hours.

Spot market volumes rose by 8 percent to a record 1,381 terawatt-hours in 2013. Short-term trading has grown 34 percent since 2009, Prospex said.

Commodity trading houses and hedge funds including Mercuria Energy Trading SA, Danske Commodities A/S and Trailstone U.K. Ltd. are increasing their influence as banks like Bank of America Corp. and Deutsche Bank AG exited electricity trading, Prospex said.

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