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EEX Exchange Council backs the use of standard power contracts for PPA Hedging

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The new EEX Exchange Council has discussed how to combine the increasing need for long-term hedging of power prices (PPAs) with already existing standard EEX products.

The concept of PPAs has become a key mechanism used by renewable energy developers to secure financing for building new assets. In many cases PPAs are now required to be in place prior to banks providing financing for new ventures such as a new wind park or solar farm. The tenor of a PPA must usually also match the repayment term of the loan.
In order to mitigate counterparty risk and secure long-term cash flows, EEX already offers cleared cash-settled futures contracts up to 6 years ahead in all major European power markets. This constitutes an important value-added service for PPA counterparties. Market participants who enter into long-term PPAs can register a strip of cash-settled calendar futures of up to 6 years in advance for clearing with EEX. This combines the need for long-term price hedging with the security of the counterparty risk mitigation through the ECC clearing house as well as the deep liquidity pool of EEX’s power derivatives markets.
EEX has noticed a strong increase in demand for such cleared long-term contracts recently. In the past four weeks alone, strips of calendar contracts up to calendar year 2024 have been registered in Spain and Germany with a total volume of 2.9 TWh. The Exchange Council encouraged EEX to further extend the existing offering by listing additional yearly expiries.
The Exchange Council also discussed the recent upswing in Emissions and was very encouraged by the positive development trends emerging in options. In recent months, EEX and its partner Incubex have successfully developed the EUA options business resulting in a market share of 23 per cent on the emissions secondary market in June this year.
Historically, EEX offered EUA Dec options as most of the liquidity was concentrated in December. However to meet client demand, the Exchange Council agreed to the introduction of further expiries in EUA options. In addition to quarters, monthly expiries will also be introduced in order to create a more flexible offering which will further differentiate EEX’s product portfolio from its competitors.
The Exchange Council of EEX is an official body of the exchange under the German Exchange Act. It consists of a total of 24 members who expertly represent the various relevant interest groups and business circles. In addition to the trading participants who are represented by 19 elected members from five different voting groups, four representatives from associations and one representative of energy science belong to the Exchange Council. The tasks of the Exchange Council include the formulation of the rules and regulations of the exchange and their amendments. The Exchange Council is also tasked with the supervision of the Management Board of the Exchange and the appointment of the Head of the Market Surveillance.

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