Power Proprietary Trading

Traditional electricity trading closed the first quarter of 2009 on a satisfactory note, but this performance could not be sustained in the following quarters. Electricity markets moved sideways in the second and third quarters, only showing slightly more volatility again in the fourth quarter.

The economic downturn resulted in a perceptible drop in prices on the spot and futures exchanges in the first and fourth quarters of 2009. Electricity prices are heavily dependent on movements in the prices of other sources of energy, particularly gas, coal, oil and CO2. Last year's trends in the prices of these commodities were very mixed. While oil and CO2 recovered from their lows, coal prices rose only slightly and gas prices fell even further. This widening gap between gas and oil prices made it difficult to predict prices for individual electricity markets. Prices for CO2 certificates were affected by the uncertainty surrounding the so-called third phase, and even briefly plummeted to single-digit figures.

Growing interest in real commodities

The difficult economic environment briefly dampened the market players' interest, although renewed interest is expected over the medium term. Despite this, many financial institutions which found themselves in difficulties at the start of 2009 did not opt to withdraw from the energy markets. On the contrary, interest in real commodities appears to have grown precisely because of the financial crisis and should provide fresh impetus for 2010.

The market coupling initiatives resulted in stronger cooperation and a growing convergence of the spot and futures exchanges. While this led to additional operating costs during the introductory phase, it has generated benefits for day trading. On 1 January 2010, the Oslo trading activities were transferred from the Energy Western Europe business division to Trading & Services. Over the year ahead, the Power Proprietary Trading unit intends to press on with gas trading activities in Oslo in conjunction with the Olten and Lausanne facilities. Most liquid markets are already covered by electricity trading, although Spain, Italy and the UK still offer some potential for expansion. From a product-specific standpoint, one option would be to expand certain structured strategies. This would result in a closer combination of classical electricity trading with other commodities.

Trading exchanges set to link up

The EU Commission looks set to issue regulatory proposals on the treatment of derivatives and OTC transactions. These are expected to include detailed accounting regulations. It is also likely that the market coupling and transparency initiatives will be pursued more vigorously, resulting in a closer link-up between trading exchanges. These developments will indirectly affect the business unit's processes, organisation and IT structures.