The head of the world’s fastest growing exchange in 2008 is anything but boastful. Yet as the Prague Energy Exchange’s David Kucera tells Agnieszka Troszkiewicz, the PXE hopes to be the nucleus of a regionwide electricity trading network.
The Prague Energy Exchange was launched in March 2007 by its majority owner, the Prague Stock Exchange, and began trading in July the same year, offering physically settled electricity futures and spot contracts.
In 2008, it topped the ranking of the world’s fastest growing exchanges, as recorded by Futures and Options Intelligence, FOW’s news and data website. PXE’s total volume for that year was 2.1m contracts, compared to 3,771 the previous year.
At the end of May 2009, volume so far this year was only 5,063 contracts, but on a year-on-year basis that was still 37% growth, the 10th fastest of any exchange.
David Kucera, PXE’s secretary-general, explains the figures: “The growth in financial volume was mainly due to the increasing price of electricity, because the price almost doubled during 2008, Europe-wide. And so in financial terms our growth significantly increased. If you look at megawatt hours, we actually realised more or less the same volume we had in 2007,” he says.
E.On Energy Trading, GDF Suez and CEZ, the Czech electricity group, are market makers on the exchange, which has 32 members, mainly international investors.
“The electricity market is a European market,” Kucera says. “Energy flows from one country to another. Energy in the Czech Republic and energy in Germany is basically the same product physically. It can be transported very easily. Big players who are active across Europe are also active in the Czech Republic and that’s why they joined the exchange.”
In December 2008, Wiener Börse bought a majority stake in the Prague Stock Exchange, bringing the PXE into a pan-regional alliance comprising the Viennese exchange and the Budapest and Ljubljana stock exchanges.
PXE is the only centre of expertise for energy trading in the Wiener Börse group, though it owns a 25% stake in the Austrian Energy Exchange. But a spokesperson for Wiener Börse says the group has no specific plans for the PXE.
Kucera says the takeover has brought no revolutionary changes to the PXE: “Wiener Börse liked very much what we did in the past and they decided they would like to expand our operation, so they are now promoting us and helping us to realise our long term business plans.”
PXE lists 20 contracts on Czech, Slovak and Hungarian electricity. The contracts, which can be settled daily, monthly, quarterly or yearly, are divided into baseload contracts for power supply 24 hours a day and every day of the year, and peakload futures, covering 8am to 8pm, Monday to Friday.
Trading is conducted in euros on the electronic AOS system, and cleared and settled by Univyc, PXE’s daughter company.
Cash to follow physical
Introducing cash-settled futures as a complement to the existing physical instruments is a priority for the exchange. To do it, however, PXE needs a good spot market. A recent integration of the Czech Republic’s two electricity spot markets in April has boosted hopes for speeding up the launch, which could attract more financial and institutional investors.
“We are analysing the data and trying to judge whether the liquidity on the spot market is sufficient to implement financially settled futures,” Kucera says.
Kucera would like to see a unified central and east European electricity market with one pricing system and a single spot price. “We like the way the market is organised in Scandinavia and something like that could be copied to the CEE region. This is something we would like very much to support,” he says.
PXE has recently expanded its portfolio by adding Hungarian and Slovak futures. So far the baseload contracts have traded a little, the peakload not at all.
“To have a futures market just for the Czech Republic is not sufficient,” Kucera says. “We always wanted to do an international business and we have to look around if there’s still some potential in neighboring countries. But for the time being the expansion potential is relatively low, because the markets are not ready for the exchange yet.”
The exchange has considered Poland and Romania, but both already have power exchanges so PXE might start cooperating with them.
“The CEE market as such is not mature yet,” Kucera says. “In Germany the volume traded on the market is probably 10-12 times the annual consumption. The transaction volume in the Czech Republic is probably two times higher than annual Czech consumption, which means that the transaction potential is still quite substantial. We believe we can grow organically, which means there will simply be more transactions going on in the market.”
Agnieszka Troszkiewicz +44 207 779 8362 atroszkiewicz@fow.com