New Southeast Europe energy exchanges boost regional integration

New Southeast Europe energy exchanges boost regional integration
The small countries of Southeast Europe are well interconnected, and the region is “one of the most interesting and promising in Europe”.
By Clare Nuttall in Bucharest April 7, 2016

The first quarter of 2016 saw a burst of activity by Southeast European power exchanges, with the launch of day-ahead electricity markets in Bulgaria, Croatia and Serbia. As well as creating effective domestic wholesale markets for electricity, this is also a further step towards integration of electricity markets across the region, which is made up of numerous small states.

The Croatian Power Exchange (CROPEX), founded in 2014, was the first to launch its day-ahead power market on February 10. The exchange said on March 10 that during the first month of operation it had recorded a total trading volume of 15,679.3 MWh, roughly equivalent to two months of public lighting in the capital Zagreb or one day’s production at the Krško nuclear power plant.

This was followed on February 17 by the launch of the day-ahead market on the Belgrade-based South East European Power Exchange (SEEPEX). The launch of the market “will be a major step in the creation of a regional power trading solution for Southeast Europe,” the exchange said in a statement. “A transparent reference price will support the development of the energy sector in the entire region,” added Thomas Siegl, chief risk officer at clearing house European Commodity Clearing, which performs clearing and settlement for the exchange.

Two days later, on February 19, the Independent Bulgarian Energy Exchange (IBEX) announced a successful first trading session. While the exchange said that supply exceeded demand at the debut session, observers say both liquidity and the number of market participants have steadily increased since then.

However, while the Romanian Electricity and Gas Market Operator (OPCOM) was founded back in 2000, several other countries in the region still do not have power exchanges. In a February report the EU Energy Community secretariat criticised Bosnia & Herzegovina for making no progress at all on creating its own power exchange.

Meanwhile, plans to set up an exchange in Albania are underway, and it is expected to launch by the end of this year. On March 30 Energy Minister Damian Gjiknuri and his Kosovan counterpart Blerand Stavileci agreed to create a joint energy market, as well as to build power plants together. "Market players from both countries are encouraged to trade power through the [Albanian] energy exchange," said a joint memorandum signed by the ministers, Reuters reported.

While both countries suffer from heavy electricity losses because of inefficiency and theft, their power generation systems are very different since almost all Albania’s electricity is produced from hydropower, while Kosovo relies heavily on coal.

Pan-European coupling

Having a power exchange helps to set electricity prices, reduce distortion in the market and make electricity trading more transparent. According to an Energy Community statement, the launch of the three exchanges “will give a further push towards electricity market integration in the region and highlight the importance of the daily timeframe as a reference for electricity trading”.

“As the day-ahead market segment forms the most important price reference in Europe’s electricity market today, we expect the establishment of organised day-ahead markets in Southeast Europe, run by power exchanges which are ready to be coupled into the pan-European market, to give a significant impetus to overall market integration,” Andreas Pointvogl, energy expert at the EU Energy Community secretariat, tells bne IntelliNews.

However, a domestic exchange is not essential. “Countries in Southeast Europe which do not have an organised day-ahead market yet are expected to be serviced either directly by one of the major European exchanges or join the Pan-European coupling through cooperation with one of the regional initiatives,” Pointvogl adds.

Setting up power exchanges is only part of the process of regional integration. According to Nord Pool, which operates power markets in Scandinavia, the Baltic states and the UK, and has advised on several of the Balkan exchanges, other steps such as investment in generation and transmission infrastructure, unbundling, and adaptation of laws and regulation are also needed.

On the infrastructure side, according to the Energy Community, the priorities for the Western Balkans are the construction of the Trans-Balkan Energy Corridor connecting Bosnia, Montenegro and Serbia, and the Albania-Macedonia power interconnection.

The region is also part of a wider European electricity transmission network; the European Commission is working to establish an east-west electricity transmission corridor from Bulgaria through Macedonia, Albania and Montenegro to Italy, and is supporting interconnection projects with pre-accession funds.

The planned subsea cable from Montenegro to Italy is part of this initiative, as is the Albania-Macedonia interconnector. Both the European Bank for Reconstruction and Development (EBRD) and the European Commission recently announced financing for the latter. Holger Muent, director for the Western Balkans at the EBRD, said in December that the construction of the new line was an “important investment promoting energy security and the development of regional electricity markets… [it] will improve the balancing of the two electricity systems, reduce operational costs and boost the use of renewable energy.”

In general, a spokesperson for Nord Pool tells bne IntelliNews, the small countries of Southeast Europe are well interconnected, and the region is “one of the most interesting and promising” in Europe. “We see today a lot of positive development in the SEE region, and it has started the journey of implementing modern, transparent power market mechanisms in line with the rest of Europe. Participants in the local markets have shown great interest in building modern markets, which is a prerequisite for success,” the spokesperson said.

“It is important, however, to remember that integrating power markets always takes time, and the toughest part is probably establishing the necessary processes between stakeholders, regulators, governments and transmission system operators. To change the way a power market operates requires cooperation between many stakeholders.”