European energy markets need more liquidity to cope with the growing risks of volatile commodity trading and to continue to function properly, according to a panel of experts who discussed the European energy crisis last week. is.
There is a need for more coordinated action between regulators in different European Union member states, said Cornelia Kawan, head of sectoral market surveillance at Elkom, the Swiss electricity sector regulator, at an Energy Trading conference in London. said during a discussion at The Week.
She says the “biggest challenge” facing the market is how to inject more liquidity to help with the huge costs of commodities and rising margin calls facing the trading community. said.
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“This year has been such that initial margin, variation margin and margin calls dominate a lot of the conversation,” added Mark Copley, CEO of the European Energy Trade Federation.
Natural gas is the marginal producer of electricity in most European countries. As a result, the costs of power and gas contracts are usually highly correlated. Both hit record highs this year amid gas supply shortages exacerbated after Russia invaded Ukraine and restricted supplies to Europe. Since then, energy industry groups have called for changes to trading rules, while regulators have considered a number of proposals to limit the impact of soaring energy costs on businesses and consumers.
Liquidity issues vary by member state of the European Union (EU). Christian Baer, executive director of Europex, the trade group representing European energy exchanges, said wealthier member countries are handling the crisis better with cash on hand to fund the energy sector. Stated.
Wealthy countries such as Germany and France are spending billions on aid packages to help businesses and consumers, making it easier to tackle rising costs. This provoked anger in small countries that could not afford to take similar measures that spurred energy consumption at a time when the country should have focused on curbing energy consumption.
How to better coordinate financial support has proven elusive, Baer said, noting that higher prices are also hitting exchanges as trading volumes have been cut. .
“The European Central Bank is a monetary policy actor and cannot provide liquidity instruments from a purely monetary perspective,” he said. “…It all took us by surprise. Two years ago we were talking about negative gas prices. I don’t think we will get out of the crisis.”
The EU’s executive branch, the European Commission (EC), is facing “extreme pressure” to quickly implement policies to further ease the financial burden of high energy prices, says the EC’s Energy Platform Task Force. member said. Response to crisis.
EC President Ursula von der Leyen this week proposed additional common funding across Europe to level the playing field between member states and support measures already taken by governments.
The European Commission has rolled out a myriad of proposals since late last year when prices began to rise significantly, some of which have been adopted and implemented. This includes voluntary reductions in gas consumption, taxation of windfall profits by fossil fuel companies and plans to reduce electricity consumption.
“I think the commission has done the right thing so far,” Baer said. But the market remains short on natural gas supply, and further regulatory action will only change that, he added.
After approving a number of measures last week to help businesses and consumers, EU energy ministers will meet next week in Prague to continue discussing a price cap for imported natural gas. Kawan said it’s hard to say what European governments will do next, but it’s likely there will be far more interventions, joining panelists and others who spoke at last week’s event. said.
She pointed out that regulators do not have the depth of expertise necessary to do so, stressing that her agency has little desire to dominate the energy market any longer.
And the EC “believes in the market” and doesn’t want to overturn its structure, say members of the Energy Platform Task Force. However, the market is not prepared for the depth of the crisis and will continue to require some level of regulatory intervention, members said.
