Electricity trading is a complex system involving various participants, including producers and large consumers. Peter Reitz, head of the European Energy Exchange, explains the trading process where bids are electronically submitted, with prices published for all to see. He highlights the growing demand for renewable energy, the intricacies of electricity pricing, and assures that Europe has a sufficient electricity supply, despite regional price variations. The market’s dynamic nature sometimes leads to zero electricity prices.
Understanding the Complexity of Electricity Trading
Electricity may seem like a simple utility that comes from your wall socket, but the reality of electricity trading involves a complex web of transactions and negotiations. Peter Reitz, the leader of the Leipzig-based European Energy Exchange (EEX), sheds light on the mechanisms behind price formation in this intriguing sector.
Who Participates in Electricity Trading?
Interviewer: Who are the key players at the Leipzig electricity exchange?
Peter Reitz: Here at the exchange, we facilitate wholesale trading, which involves electricity producers, network operators, and large consumers or distributors that supply power to households. While major electricity corporations are prominent participants, smaller municipal utilities also engage in trading. Anonymity is crucial in this market, ensuring all participants are treated fairly, with prices determined based on the bids submitted.
Interviewer: How does the trading process function? Do suppliers simply sell their excess electricity?
Reitz: Precisely! We have hundreds of participants who electronically submit their bids at the exchange. Typically, producers are on the selling end, while large consumers are on the buying side. We publish the price, making it accessible not only to participants but also to the general public.
Peter Reitz has been steering the European Energy Exchange (EEX) since 2011. With a career that began at Deutsche Börse in Frankfurt and included a significant tenure at Dow Jones Indexes in New York, he has played a vital role in shaping EEX and its clearing house, European Commodity Clearing (ECC). His extensive background in the financial sector is complemented by his academic credentials in mathematics.
The Dynamics of Electricity Consumption
Interviewer: Who are the major consumers of electricity? Is it primarily industry?
Reitz: Not solely. Municipal utilities and distributors that serve households also represent significant consumers.
Interviewer: Is it possible to trace the origin of the electricity when it’s purchased? Can consumers know which energy sources are used?
Reitz: Unfortunately, it isn’t feasible to ascertain the origin of electricity itself since it is always a blend of different generation types available at the time. However, green electricity can be separately traded, with the EEX offering so-called origin certificates to facilitate this.
Interviewer: Has consumer interest in the origin of electricity increased?
Reitz: Absolutely! The share of renewable energy sources has surged, with over 60 percent of electricity in Germany generated from renewables in the first half of this year. As demand rises, it shapes the supply and composition of the electricity mix.
In an interesting turn of events, there were days in May when electricity prices at the exchange dropped to zero, reflecting the dynamic nature of the market.
Understanding the Electricity Pricing Structure
Interviewer: What is traded at EEX, and how is the final price determined for consumers?
Reitz: The final price consists of three main components: the wholesale price, which is the base procurement cost; network charges, which cover the transportation of electricity to consumers; and taxes and levies, which make up the largest portion.
Interviewer: How have wholesale prices evolved this year?
Reitz: It’s important to note that there isn’t a single electricity price. Prices are influenced by regional factors, as EEX facilitates trading not only for Germany but also for more than 20 European countries, Japan, and the USA. Another variable is the delivery date; electricity can be purchased in increments as small as 15 minutes or as far in advance as ten years. Overall, prices have generally decreased this year compared to the previous year.
Interviewer: A common concern among consumers: Is there an adequate supply of electricity?
Reitz: Yes, there is ample electricity supply. The European market is highly interconnected, allowing for balance even when one country experiences lower generation than consumption. Overall, Europe has a surplus of electricity supply compared to demand, despite variations in pricing.
This interview was conducted by Stefan Wolff from the ARD Financial Editorial Team.