Hungarian power futures exchanged volumes are expected to recover, despite being at a deficit to 2022 levels in January-May, but developments in existing central and eastern and southeastern European (CEE-SEE) market regulations, including price caps, are still a key factor affecting the wider regional market, Switzerland-based power and gas firm MET Group representatives told Argus.
Source: Argus
Hungary is now on the recovery track, the company's head of power trading Balint Vass told Argus on the sidelines of the Energy Trading Central and South-Eastern Europe conference in Vienna last week. It has taken slightly more time for companies to recover from last year, when most players reduced their trading activity as a result of financing and liquidity constraints and a generally stricter control around market risk, credit risk and margin risk management processes, he noted.
Credit and financing facilities had to be adapted to accommodate higher price levels and volatility following last year's energy crisis, Vass said. In early 2023, the number of participants in regional markets seemed significantly lower than usual, as underlined by decreasing volumes, but in recent months more companies have been restoring their past activity levels.
Hungarian volumes on European exchange EEX fell by 37pc on the year to nearly 5.8TWh in May, but rose by around 1TWh from April this year.
Despite Hungarian liquidity already being on the rise, SEE volumes are not expected to recover for a while as a result of existing regulatory measures in certain market segments, such as price caps, Vass said. This materialises in reduced wholesale electricity market volumes, with either supply or demand volumes and hedging action expected to remain limited as long as some measures remain in place. As these semi-liquid and illiquid regions often trade through geographical spreads, this negatively impacts the more liquid pricing hubs such as Hungary, he noted.
Because of the energy crisis and the measures taken against it, trading activity has been shifting towards near-term products, including intraday trading. This is a result of several factors including the lack of liquidity and reduced appetite owing to credit risk and margining risk on the curve, as well as the higher penetration of renewables offering optimisation opportunities around flexible assets and balancing cost reduction potential by trading in short-term markets, Vass said.
Taking note of these trends, MET Group has developed its own smart aggregator platform and is embarking on intraday algorithmic trading to be able to manage its complex portfolio, consisting of conventional power plants, renewables, end-customers and, in some countries, batteries and electric boilers, Vass noted. But the company expects to keep a strong focus on forward trading, especially asset optimisation and geographical spreads, as it believes that a well-functioning forward market and its consequent liquidity in fixed-price power purchase agreements (PPAs) are essential to achieve the EU's climate targets, Vass told Argus.
The company also recognises the importance of emerging and developing markets such as North Macedonia, Albania and Montenegro — three countries that recently launched their own power exchanges. An exchange is a strong signal of a market being developed, as it provides transparency, increases reliability and creates a reference price to be used in the development of power derivatives or for the signature of PPAs, Vass said. MET Group is in the process of entering these countries and consequently their power exchanges.
The company is also focusing on and expanding its capabilities in merchant-based PPAs and expects to announce the signature of its first corporate PPAs in the CEE-SEE region during the coming months, it told Argus.