1. Could you describe the way EPEX organises spot market
trading in electricity?
We have two market segments, one is called the day-ahead,
the other is called intraday trading. On the day-ahead market
electricity is traded for a delivery on the following day. Once
per day at twelve o'clock we close the order book and do an
auction. In summary we run a fairly complicated optimisation
problem in crossing the demand and supply curve under the
constraint that there is enough capacity to flow from one
country to the other. Calculations take ten minutes at most
while the entire process lasts for 50 minutes. At 12:53 we
publish 24 prices for the 24 hours of the day. While this is the
main market that exists for the spot market in Europe we also
organise intra-day trading starting in the afternoon. This is
a continuous market like a stock exchange. Similarly traders
submit anonymous orders at least 45 minutes before delivery
may take place.
2. Why do we need two distinct frameworks?
To some extent this is true for historical reasons. As power
is not a storable commodity transmission operators (TSOs)
are used to ask for a lot of information the day before. This
information is much needed in order to foresee as closely
as possible what is going to happen during the next hours.
On the other hand the intra-day process is something that is
much more recent. While the day-ahead auction started
in year 2000, intraday was only introduced 5 or 6 years
afterwards. Its purpose is rather to face unexpected events
such as the failure of a power plant. Additionally renewable
energy becomes more and more important. Since forecasts
for renewable energy are not accurate intraday trading is
very helpful. Still the day-ahead trading is the most liquid of
all markets and participants trade their entire demand based
on what they know the day before.
3. Why do we observe negative retail prices on the
This may occur when there is a huge quantity of energy
coming to the market at times when demand is very low,
say for instance the day after Christmas. While at 4 a.m. there
may be a lot of wind blowing, no one wants to consume
any energy but sleep and recover from Christmas Eve. In the
meantime power is just flooding the whole of Europe. In such
a case there are some producers who prefer to pay instead of
cutting their own power plant because cutting a thermal, gas
or coal power plant can be very costly knowing you would
have to restart it in a couple of hours. If henceforth prices go
until a certain negative threshold suppliers may be willing to
keep their power plant running. Indeed this is a very strange
feature of the market. It illustrates the lack of flexibility of
power generation in Europe and shows that our classical
means of producing power are not flexible enough to react
to shocks such as a high supply of wind energy which can
make up more than 20 % of German energy supply.
4. Why are negative prices not transmitted to consumers?
On the one hand the way consumers respond to prices is not
that developed. You may subscribe to different day and night
prices but most households sign fixed price contracts. On the
other hand the bill consumers pay consists of only a small
fraction of generating costs. Taxes, expenses to excess the
grid, technical support and subsidies for people in remote
areas paying the same prices as those in urban areas all add
up on the bill such that wholesale prices make up only 20 %
of the bill that we pay.
5. How can we ensure sufficient incentives to invest into
This is something that we call the missing-money problem,
the remuneration for capacity which is not used but has to be
there. When the wind does not blow we have to have some
support power plants that are usually some gas or coal power
plants. There is a lot of emotion in Europe about this topic.
Conventional power plants find it more and more difficult to
be alive and have their power plant running because they
do not receive enough money for that. There are a lot of
mechanisms that could be imagined in order to make sure
that this capacity is paid.
We are working closely on the French case because French
legislation is more finalized on this topic. RTE, the French
TSO, already published some rules with regards to how the
market should be organised that will be implemented next
year. The principle is that every supplier should make sure
that someone is in the market that is able to produce power.
Thus some power plants will be obliged to supply capacity.
The role of EPEX would be to help suppliers and generators
to exchange capacity certificates and finally make a price out
of it as we're doing for the energy market.
6. Why is this legislation only happening on a French level?
This is the contradiction we experience every day. While we
are working on the development of a European market the
responsibility for energy policy remains at the level of the
member states. France has a specific problem for the winter
peak due to electrical heating. Germany decided to adopt a
specific policy in shutting down nuclear power plants. Yet for
some specific reasons Germany has decided not to adopt a
capacity market. Thus everyone has different problems. That's
quite a mess and at times this is also a reason why the market
does not work properly. Therefore there's quite a lot of work
ahead on how to create an efficient mechanism and as a
French-German company we would like of course to have a
7. What are the main challenges ahead towards further
integration of the market?
We are supposed to achieve what is called the target model
of European power market integration by the end of this
year. This is still not the case because it proves to be much
more difficult than initially foreseen. At the moment power
exchanges only optimise the flows between some countries
creating prices at the day-ahead level. These include Portugal,
Spain, Scandinavia, Germany, the UK and the Benelux
countries, but leave out Italy and Eastern Europe.
8. Can TSE students help you doing so? What kind of profile
are you looking for?
Most of the people working at EPEX are not engineers,
despite the fact that the business is very technical. So don't
be afraid to dig into technical things. What I think is important
is a strong background in Economics and a lot of interest in
the energy market. We like people to speak in English as our
teams are multicultural and multinational. We usually don't
publish any advertising or offer for internships, but we do
welcome one or two internships per year. I don't like to have
someone for less than three months, any duration between
three and six months is fine.