TGE (Polish Power Exchange)is the only licenced com modity exchange in Poland which holds a permit to operate a regulated market. The volume of electricity and natural gas traded on TGE places it as the largest in CEE.
What is your view of the electricity market development in the past year?
The year 2019 was not an easy one for the market. On the one hand, electricity prices on the wholesale market remained high, on the other, there was great uncertainty at the beginning of the year about the government’s approach to the retail price freeze, and about the final formula of the announced compensations, which was mainly due to the need for the notification of state aid solutions to the European Commission.
This situation could have had a significant impact on our clients' strategies on the electricity market and their activity at TGE during that period. Our initiatives, such as the new program for liquidity improvement through the introduction of a new value proposition for market makers as well as the “Maker-Taker” program, could not fully stimulate the market activity. Therefore, attracting a market maker that has been operating under the new formula since April 2019 is considered a major success of our Exchange.
The finalisation of the Clean Energy for all Europeans package should be seen as a positive step in the context of electricity market development. Its implementation will most probably be a major challenge in the coming years.
The key development that had a positive impact on the electricity market dynamics was the implementation of the XBID model on the intraday market and the related further integration of the European markets, which stimulated interest not only among the current TGE members but also on the part of players that had not actively participated in commodity markets before, be it as direct members of TGE or through brokerage houses.
How is TGE doing in the regional context? Were there any breakthrough developments in 2019?
The development of TGE should be seen not only in the regional dimension but also in much wider, European one. Please note that TGE has been involved in the creation of a common electricity market for many years. The day-ahead market coupling is based on the cross-border exchange trading model developed within the framework of the Price Coupling of Regions (PCR) initiative, while the coupling of European intraday markets is taking place as part of the Cross-Border Intra-Day (XBID) project.
In November last year we launched the European intraday market based on the XBID model, which brought about a significant growth of trading volumes on the exchange. Based on the past few months, we already know that it was a good decision.
The integration of the electricity market is progressing, the domestic market is changing, and this makes it more attractive and should be a good news for the final customer. Let us also not forget what has been happening in the gas market in recent years. Poland, with its central location will establish, in the near future, a physical connection to Denmark and Sweden via the Baltic Pipe, and to Lithuania, Latvia, Estonia and Finland via the GIPL. This will create new opportunities for the development of cross-border trade and the creation of a liquid regional gas market. All these integration initiatives are consistent with the “Gas Hub” project which is an element of the Strategy for Responsible Development. TGE is one of the parties involved in its creation.
Last year, as part of our development efforts, we reached out to our counterparts from the Baltic States with an initiative to establish closer cooperation. The first result of the measures taken by TGE is the cooperation agreement signed between the Lithuanian exchange GET Baltic and the Polish Commodity Clearing House (IRGiT) controlled by TGE.
What challenges await TGE in 2020?
We will certainly face a major challenge in the form of new regulations resulting from the announced introduction of the next stage of climate policy by the EU, based on the European Green Deal, which may also have an impact on the electricity market in general.
Starting from the beginning of this year, we will hold consultations on the development activities concerning the markets operated by TGE through the newly established Market Council, which will include representatives of major industry associations.
The Council will present proposals of business solutions to the Management Board of TGE. I am confident that this cooperation will bring tangible benefits to market participants.
As far as current activity is concerned, further integration of the European markets, and in particular the wider penetration of market coupling, will be a challenge for the SPOT market. The development of the forward market is another important area, and here, TGE and our clients also face a big challenge, e.g. implementation of the OTF platform, which will require strong operational commitment on both sides. However, TGE does not stop there and is looking into further market development opportunities in the scope of financial instruments for electricity, gas and CO2 emission allowance trading.
At this point, new business areas are extremely important to us. We are implementing, within the WSE Group, a pilot project for the agricultural market, and are very keen to see the outcome of this effort and the real potential of this market. Whether it will be an important new business line of TGE, time will tell.
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