Future Development of European Wholesale Energy Markets

Content

• Chapter 1 Executive Summary
  • This report examines the likely development of gas and power wholesale market liquidity over a ten year forecast period from 2008
  • The Netherlands and Germany lead the field in both gas and power wholesale market future development potential
  • The size of future wholesale gas traded volumes mirror current levels of competitive development in the selected markets
  • There is little evidence to show that the currently undeveloped wholesale markets will have significantly developed by 2018
  • In proportional terms, the Netherlands will be the most liquid of the gas markets surveyed
  • By the end of the forecast period the relative differences in wholesale power market liquidity between individual markets will remain
  • By the end of the forecast period individual wholesale market dynamics create potential trading and arbitrage synergies on a regional hub basis
  • Greater indigenous self sufficiency creates less scope for power hub development than is the case with gas hubs
• Chapter 2 Introduction
  • This analysis forecasts the size and development of wholesale gas and power liquidity in 10 key European gas and power markets
  • The future potential of wholesale market development is scored on a scale of 1 to 10 according to various structural factors
  • Overall scores are based on a weighted average of 4 key metrics based on structural factors known to drive wholesale market liquidity
  • Two methods of calculation are used in order to ensure accuracy of results and to remove erroneous or misleading scores
  • The Existing Progress metric assesses the current stage of wholesale development reached in a particular market
  • The Location metric assesses how well endowed a market is with access to converging supply sources and potential export markets
  • Future Switching is the key metric and assesses how short term retail switching creates potential need for wholesale supplies
  • The Demand metric assesses the impact on wholesale market development of demand growth and absolute demand levels
  • This report is aimed at those needing a greater insight into the likely evolution of wholesale energy markets in Europe
  • The accompanying interactive model forecasts the potential size of the selected wholesale markets in 2018
  • Once sufficiently strong structural factors are in place, the necessary support services required for hub development begin to emerge
  • Once sufficiently strong structural factors are in place, the necessary support services required for hub development begin to emerge
  • The development of wholesale markets tends to follow a preset pattern of distinct stages
  • The market based factors supporting hub development are crucial elements in facilitating and developing traded markets
  • In addition to market and structural factors, the creation and development of wholesale markets is driven by various types of market player
• Chapter 3 Market Status
  • Where wholesale gas markets have emerged across Europe, levels of maturity vary significantly though are often influenced by market size
  • In the power market, levels of market development are less influenced by market size than the gas market
  • The Czech Republic's geographic position is one of the few factors in the current environment likely to assist the development of a Czech wholesale gas market
  • Like the gas market, the Czech Republic power market's potential for increased wholesale activity is mainly driven by its physical location
  • The tentative steps taken so far towards the development of a Danish gas hub will be driven in the future by both geographic location and upstream production
  • The Nord Pool, of which Denmark is a part, is a liquid and well developed wholesale power market
  • France's geographic location will continue to give the fledgling traded gas market further impetus, particularly when new LNG facilities come on line
  • PEG trading volumes remain modest but are growing rapidly
  • Despite both the existing progress and location metrics helping drive wholesale market development, future progress will be curtailed by switching apathy and limited scope for demand growth
  • A favorable geographic location is the key element driving Germany's gas score
  • Germany's already well established wholesale power market liquidity is driven by a long period of market opening, geographic location and retail market fragmentation
  • A wholesale hub may emerge a considerable way down the line if demand growth remains buoyant and if new infrastructure is built
  • Longer term potential exists for a wholesale power market given strong demand growth and planned infrastructure development
  • The undeveloped nature of the Irish market significantly curtails its wholesale traded market potential
  • Other than strong demand growth, there are seemingly few factors contributing to Irish wholesale power market development
  • A favorable location, strong switching propensity and above average demand growth will all aid existing wholesale market development
  • The continued development of the existing Italian wholesale market will be constrained by low switching and GDP issues
  • All of the Dutch gas market metrics score highly indicating that they will continue to drive wholesale market development
  • The Dutch market has one of the world's most well established wholesale power markets outside of the Nord Pool
  • Demand growth and location will drive Polish wholesale market development, though the prevailing obstacles mean that this is unlikely to occur in the short to medium term
  • The further development of Poland's illiquid power exchange is likely to be constrained by low demand growth and minimal switching activity
  • Strong demand growth and a close proximity to Algeria are likely to be key drivers in continuing the early progress already made towards Spanish wholesale gas market development
  • Strong demand growth will be a key driver in the continued development of the Spanish wholesale power market, particularly when the single Iberian market is launched later in the year
  • A summary of scores shows that the selected gas markets have widely varying degrees of potential wholesale market development
  • Greece is the only market to achieve a zero multiplicative score for wholesale power market development potential
  • The Netherlands and Germany lead the field in both gas and power wholesale market future development potential
  • By 2018 gas switching rates are likely to be more uniform across markets than in the current climate
  • By 2018 switching rates will be sufficiently well developed in most power markets to drive at least some wholesale market development
  • By 2018 demand levels and high switching rates will ensure Germany, the Netherlands and Italy are the most well developed wholesale gas markets in the sample group
  • Continued high absolute demand levels and switching activity will continue to drive the development of the German wholesale power market
• Chapter 4 Market Trends
  • Like the gas market, Czech wholesale activity will be constrained by low switching rates and a lack new entrants coming into the market
  • Danish wholesale liquidity will be driven by rapid market opening and upstream activity creating a long and deep forward curve relatively soon into the forecast period
  • Danish wholesale power market development is already mature owing to the presence of the Nord Pool market
  • Despite the progress made by the PEG market, a lack of competitive gas will constrain the short term development of wholesale liquidity
  • Despite the liquidity provided by Powernext, the position of EDF will constrain meaningful liquidity until much later into the forecast period
  • A combination of demand levels, physical location, grid reform and a fragmented retail market will conspire to produce a German wholesale market resembling the NBP in the medium term
  • Reduced generation market concentration and policy decisions will produce an increasingly liquid and well traded wholesale market
  • Strong demand growth and a new role as a transit state are unlikely to be strong enough factors to overcome the liquidity dampening effects of Greece's directive derogation and immature market
  • Wholesale liquidity creation in Greece is heavily dependent on the creation of a market structure sufficiently attractive to encourage new entrants
  • A lack of supply source interconnections and limited indigenous production mean a wholesale Irish gas market remains unlikely during the forecast period
  • The factors holding back the development of the Irish wholesale power market are similar to those impacting the gas market
  • Supported by strong structural factors, the limited, but growing, Italian wholesale gas market will continue to develop over the forecast period
  • Further development of the current levels of liquidity is dependent on increased switching and recovery from recent economic malaise
  • Strong structural factors, particularly demand, will ensure rapid and continuous development of the TTF into a highly liquid and pivotal market by 2018
  • Continued wholesale liquidity will develop despite the limitations resulting from a lack of fragmentation throughout the value chain
  • High market concentration and a lack of supply diversity will significantly constrain Polish liquidity development, despite favourable demand and locational factors
  • Despite the emergence of limited wholesale power liquidity, considerable barriers remain regarding its future development
  • A combination of strong structural factors, rapid industry development and progress made so far mean that Spain has potential to become a key wholesale market by 2018
  • Early market opening has allowed Spain to so far achieve greater wholesale liquidity than many other markets, though future development is constrained by Endesa's continued strong position
  • The size of future wholesale gas traded volumes mirrors current levels of competitive development in the selected markets
  • By the end of the forecast period the relative differences in wholesale power market liquidity between individual markets will remain
  • In proportional terms, the Netherlands will be the most liquid of the gas markets surveyed
  • The effects of an already well developed power market combined with developments in gas trading liquidity will see Denmark leading the field in proportional combined energy market liquidity by 2018
  • By the end of the forecast period individual wholesale market dynamics create potential trading and arbitrage synergies on a regional hub basis
  • Greater indigenous self sufficiency creates less scope for power hub development than is the case with gas hubs
• Chapter 5 Methodology
• Chapter 6 Further Details
  • Related reports and contact details
• List Of Figures
  • Figure 1: Summary Wholesale Market Development Potential Scores
  • Figure 2: Potential 2018 Gas Wholesale Traded Volumes
  • Figure 3: Potential 2018 Power Wholesale Traded Volumes
  • Figure 4: Potential 2018 Gas Wholesale Traded Volumes as a Proportion of Market Demand
  • Figure 5: Potential 2018 Power Wholesale Traded Volumes as a Proportion of Market Demand
  • Figure 6: Likely Gas Hubs by 2018
  • Figure 7: Likely Power Hubs by 2018
  • Figure 8: Markets covered by this report
  • Figure 9: Wholesale market development scoring scale
  • Figure 10: Overview of Wholesale market development scoring metrics
  • Figure 11: Overview of existing progress metric
  • Figure 12: Overview of location metric
  • Figure 13: Overview of future switching metric
  • Figure 14: Overview of demand metric
  • Figure 15: Summary of potential users of this report
  • Figure 16: Overview of liquidity forecasting model
  • Figure 17: Overview of market scoring framework
  • Figure 18: Wholesale market development cycle
  • Figure 19: Wholesale market support services evolution cycle
  • Figure 20: Wholesale market development stages
  • Figure 21: Wholesale market support services overview
  • Figure 22: Different influences of market players on wholesale market development
  • Figure 23: Existing levels of European energy wholesale gas market liquidity
  • Figure 24: Existing levels of European energy wholesale power market liquidity
  • Figure 25: PEG Trading Volumes
  • Figure 26: Summary Gas Scores
  • Figure 27: Summary Power Scores
  • Figure 28: Summary Gas Scores vs Summary Power Scores
  • Figure 29: 2018 Residential vs Non Residential Gas Switching Rates
  • Figure 30: 2018 Residential vs Non Residential Power Switching Rates
  • Figure 31: Forecast 2018 Gas Market Consumption vs 2018 Forecast Switching Rates
  • Figure 32: Forecast 2018 Electricity Market Consumption vs 2018 Forecast Switching Rates
  • Figure 33: Poland Summary Gas Scores
  • Figure 34: Poland Forecast Wholesale Gas Volumes
  • Figure 35: Poland Summary Power Scores
  • Figure 36: Poland Forecast Wholesale Power Volumes
  • Figure 37: Denmark Summary Gas Scores
  • Figure 38: Denmark Forecast Wholesale Gas Volumes
  • Figure 39: Denmark Summary Power Scores
  • Figure 40: Denmark Forecast Wholesale Power Volumes
  • Figure 41: France Summary Gas Scores
  • Figure 42: France Forecast Wholesale Gas Volumes
  • Figure 43: France Summary Power Scores
  • Figure 44: France Forecast Wholesale Power Volumes
  • Figure 45: Germany Summary Gas Scores
  • Figure 46: Germany Forecast Wholesale Gas Volumes
  • Figure 47: Germany Summary Power Scores
  • Figure 48: Germany Forecast Wholesale Power Volumes
  • Figure 49: Greece Summary Gas Scores
  • Figure 50: Greece Forecast Wholesale Gas Volumes
  • Figure 51: Greece Summary Power Scores
  • Figure 52: Greece Forecast Wholesale Power Volumes
  • Figure 53: Ireland Summary Gas Scores
  • Figure 54: Ireland Forecast Wholesale Gas Liquidity
  • Figure 55: Ireland Summary Power Scores
  • Figure 56: Ireland Forecast Wholesale Power Volumes
  • Figure 57: Italy Summary Gas Scores
  • Figure 58: Italy Forecast Wholesale Power Volumes
  • Figure 59: Italy Summary Power Scores
  • Figure 60: Italy Forecast Wholesale Power Volumes
  • Figure 61: Netherlands Summary Gas Scores
  • Figure 62: Netherlands Forecast Wholesale Gas Volumes
  • Figure 63: Netherlands Summary Power Scores
  • Figure 64: Netherlands Forecast Wholesale Power Volumes
  • Figure 65: Poland Summary Gas Scores
  • Figure 66: Poland Forecast Wholesale Gas Volumes
  • Figure 67: Poland Summary Power Scores
  • Figure 68: Poland Forecast Wholesale Power Volumes
  • Figure 69: Spain Summary Gas Scores
  • Figure 70: Spain Forecast Wholesale Gas Volumes
  • Figure 71: Spain Summary Power Scores
  • Figure 72: Spain Forecast Wholesale Power Volumes
  • Figure 73: Summary Potential Wholesale Gas Trade Volumes 2018
  • Figure 74: Summary Potential Wholesale Power Trade Volumes 2018
  • Figure 75: Relative Wholesale Power Market Liquidity 2018
  • Figure 76: Relative Wholesale Gas Market Liquidity 2018
  • Figure 77: Forecast Relative Wholesale and Power Liquidity 2018
  • Figure 78: Likely Gas Hubs by 2018
  • Figure 79: Likely Power Hubs by 2018