gas market on the polish power exchange

GAS MARKET
ON THE POLISH POWER EXCHANGE
Ladies and Gentlemen,
Poland’s EU membership has opened our country to significant
economic changes which are necessary for us to compete on the
European and global stage. To a large extent, this refers to such key
areas as the energy sector and the gas market.
The liberalisation of Poland’s gas market is not only needed by our
modern market economy, but is also consistent with the internal energy
and gas market, regional market and enhanced domestic market
schemes proposed for implementation by the European Commission
and Council.
The electricity and gas trading environment must provide our companies with an opportunity
to operate on a competitive market and such favourable conditions are offered by the Polish
Power Exchange. Incorporated as part of the Warsaw Stock Exchange Group, the Polish Power
Exchange is currently one of Europe’s most rapidly growing commodity exchanges. We are
convinced that our experience and contribution to the development of our domestic electricity
market will foster a rapid development of a wholesale gas market in Poland and, eventually, lead
to the full deregulation of gas prices.
The August 2010 amendment to Poland’s Energy Law introduced the so-called „exchange
obligation”, under which power generators are obliged to sell at least 15% of their electric power
production through public forms of sale. Although it initially met with criticism from some power
generators, the amendment has proved a success, as significantly more electricity is now traded
through the Exchange than the statutory minimum. It is a clear sign of the maturity of this market.
We are confident that wholesale gas trading now offered on POLPX will attract a similar interest
of market players.
While providing full transparency of transactions, we also offer the highest quality and security
of clearing services through the Warsaw Commodity Clearing House associated with POLPX.
With a wide host of collateral options on offer from WCCH, we are able to ensure low exchange
transaction costs for our clients while maintaining the highest security standards.
Our priority is to create a commodity trading environment conducive to the full and effective
use of the opportunities to be soon offered by a common European electricity and gas market for
all market players.
Ireneusz Łazor
President
Polish Power Exchange
3
ROLE OF THE POLISH POWER EXCHANGE
Poland’s First Licensed Power Exchange
Founded in 1999, the Polish Power Exchange is a major contributor to the process of the liberalisation of the
power and gas market in Poland. It is the first (and so far the only) entity to have obtained a licence for providing
commodity exchange services from the Polish Securities and Exchange Commission (now Polish Financial Supervision
Authority), which it has held since 2003. Following its February 2012 incorporation into the Warsaw Stock Exchange
Group, the WSE Group now has a 98% equity interest in POLPX.
POLPX provides transparent transaction procedures and market-driven electricity prices. It is a public trust
organisation whose mission involves creating a commodity market and capturing the synergies of being part of the
Warsaw Stock Exchange Group to develop a financial services market.
Since its foundation, the Polish Power Exchange has pioneered innovative solutions in the field of wholesale
electricity trading. Within only 6 months of foundation, the company managed to launch a spot market for electric
power in Poland. Thanks to the implementation of appropriate organisational solutions and IT infrastructure, POLPX
was entrusted the task of creating and operating the Certificate of Origin Register for electricity generated from
Renewable Energy Sources (RES), and, in 2007, also for CHP. Concurrently with the Registers, the Property Rights
Market was launched, where RES and CHP generators as well as entities obliged to purchase certificates of origin can
trade in property rights to those certificates.
After more than 10 years of operating the electricity market, POLPX has won the trust of the largest power
generators in Poland, Central-Eastern and Northern Europe alike, while earning a position of respect for providing
superb transaction security, transparent pricing and some of Europe’s lowest transaction fees.
In its activity POLPX remains under constant supervision of the Polish Financial Supervision Authority to ensure
the highest standards of confidence and security of trading on all markets offered.
The April 2010 foundation of the Warsaw Commodity Clearing House has also proven successful in minimising the
collateral costs of transactions made on POLPX.
All the above efforts have consolidated POLPX’s position as an attractive partner in the energy market.
Polish Power Exchange as a Partner Towards a Common European Energy Market
The Polish Power Exchange is currently one of the most rapidly growing commodity exchanges, which trades
power, property rights, carbon emission allowances and natural gas. The total 2011 volume of trade in all the
power-related markets reached 126,679 TWh, which constitutes 78% of power generated in Poland and over 80% of
overall power consumption for that period. This is an increase of 55% compared with 2010 figures. POLPX’s steadily
increasing liquidity enabled the 2010 launch of the so-called market coupling mechanism, whereby the members
of POLPX and Sweden’s Nord Pool Spot exchange can trade in electric power on both exchanges through the crossborder SwePol Link.
The integration of European energy markets, where POLPX is an active player, based on Market Coupling mechanism
for day-ahead transmission capacity allocation, forms the foundation for a common European energy market among
individual Member States to be implemented by 2014 by means of the so-called price-coupling mechanism.
The PCR (Price Coupling of Regions) model for the day-ahead market is being developed by Europex, an association
that seeks to promote a consolidation of European energy markets via cross-border interconnectors. POLPX is an
active member of Europex.
4
GAS MARKET ON THE POLISH POWER EXCHANGE
POLPX’s strategy is consistent with the implementation of the internal electricity and gas markets, the respective
regional markets, as well as improvements of the domestic market, as proposed by the European Commission and
the Council.
The European Union’s Third Energy Package adopted by the European Parliament and Council in 2009 is to provide
all EU citizens with:
● a fully competitive, liquid and transparent electricity and gas market,
● free choice of electricity and gas suppliers by the consumer,
● more fair and optimised electricity and gas pricing,
● security and reliability of electricity and gas supply.
While acting within the spirit of the package, POLPX is determined to create a wholesale gas market based on
exchange market arrangements, where:
● gas supply and demand are aggregated in one place,
● a reference gas price is set on the local wholesale market under fully competitive conditions. The price will then
be used as a benchmark for all transactions on the gas market.
5
GAS TRADING ON THE POLISH POWER EXCHANGE
Participation in the Gas Market at POLPX
In the current legislative and regulatory context, trading on the gas market is only permitted via brokerage houses
and commodity brokerage houses, which are members of POLPX.
A party interested in participating in the gas markets, which is neither a brokerage house not a commodity brokerage
house will be required (apart from entering into an agreement with a brokerage house to represent a given entity on
POLPX) to conclude a transmission contract with the Polish Transmission System Operator (GAZ-SYSTEM S.A.), under
which trading parties will receive a so-called shipper code. The contract with the TSO together with an attachment that
constitutes the transmission ability allocation (PZ) at least for WPWEGG and WPWYGG (virtual entry/exit points for the
gas exchange) is a minimum prerequisite for the participation in the gas trading on POLPX:
http://www.gaz-system.pl/strefa-klienta/zloz-wniosek
Companies engaged in the gas trade business will also be required to hold a licence for trade in gas obtained from
the President of the Energy Regulatory Office.
The licence will not be required from companies purchasing natural for their own use.
POLPX general terms and conditions of membership are available online at:
http://www.tge.pl/pl/71/jak-zostac-czlonkiem-gieldy
Similarly to electricity trading, brokerage houses will be able to use their clients’ shipper codes. POLPX will submit
transaction information to the TSO (GAZ-SYSTEM S.A.) in the form of nominations. Nominations, containing details
of transactions made by each POLPX Member or brokerage house, are to be submitted daily and reflect the balance
of transactions made by each entity on the Day-Ahead and Intraday Market and the Futures Market with nextday delivery. In accordance with the Network Transmission Code, a nomination received from POLPX is deemed
approved by GAZ-SYSTEM S.A. GAZ-SYSTEM S.A. will not receive information on financial instruments used to make
transactions.
Gas Trading
Transactions made on POLPX will solely involve high-methane gas E, with trading organised into separate markets,
including:
● Day-Ahead and Intraday Gas Market, trading in natural gas
and
● Futures Market, trading in property rights other than financial instruments (commodity futures), whose price
is directly or indirectly dependent on the price or value of gas.
Transactions made on the Day-Ahead and Intraday Gas Market will initially involve the day-ahead market only.
Intraday transactions are due for launch at a later date.
Trading on the Day-Ahead and Intraday Gas Market will take place on the day preceding gas delivery, whereas
monthly, quarterly and yearly contracts for gas delivery will be traded on the Futures Market.
Trading will involve contracts with 24-hour/day delivery. Opening a position will result in the delivery or off-take
of an identical gas volume in each hour of the Gas Day throughout the duration of the contract.
The Gas Day, as defined under the Transmission Network Code of the Gas Transmission Operator GAZ-SYSTEM
S.A., starts at 6:00 am of any given day and ends at 6:00 am of the following day.
Day-Ahead and Intraday Gas Market transactions will be made under continuous trading.
● The quotations on the Day-Ahead and Intraday Gas Market will take place daily from 8:00 am to 2:00 pm.
Collateral on this market is required for buy orders only and amounts to 100% of the value of any order placed.
No collateral is required for sell orders.
● The quotations on the Futures Market trading will be take place according to the quotation and execution
calendar, on business days only, from 8:00 am to 2:00 pm. On the Futures Market, both the seller and the buyer
are required to deposit a margin in the amount set by the Warsaw Commodity Clearing House (WCCH).
6
SECURITY AND CLEARING OF TRANSACTIONS ON THE DAY-AHEAD/
INTRADAY AND FUTURES MARKETS - Warsaw Commodity Clearing House
Transactions made on POLPX will be secured and cleared through the intermediary of Brokerage Houses, which
are members of the Exchange Clearing House operated by the Warsaw Commodity Clearing House.
Warsaw Commodity Clearing House
The Warsaw Commodity Clearing House (WCCH) was Poland’s first institution to obtain a licence for providing
Clearing and Settlement House services. A holder of this licence may operate an Exchange Clearing House to clear
commodity market transactions. The Exchange Clearing House, which has been run by the Warsaw Commodity
Clearing House since 2010, is active in providing financial services for transactions made on all POLPX markets. WCCH’s
mission is to ensure the highest standard of transaction clearing and settlement services. A robust risk management
system guarantees the security of settlement for all Clearing House Members, should any of the counterparties
become insolvent. Transaction clearing by the WCCH carries a guarantee of payment for the gas sold. The discharge
of liabilities arising under collateral instruments, similarly as the entire process of making and clearing transactions
will take place be the intermediary of Brokerage Houses.
Settlement Guarantee System
The settlement guarantee system for the gas market on POLPX includes the following:
1. for the SPOT Market
● transaction margins.
Transaction Margin
A transaction margin is a collateral deposited by the Clearing House Member that enables transactions to be
made on markets cleared by the Clearing House. WCCH sets the minimum transaction margin amount for each
market cleared. The value of a transaction margin is equal to the Clearing House Member’s total funds less the
balance of liabilities arising from transaction settlements.
2. for the Futures Market:
● transaction margins,
● collateral margins,
● guarantee fund,
● transaction limit monitoring system.
Transaction Margin
A transaction deposit is collateral submitted by the Clearing House Member enabling transactions to be made
on markets cleared by the Clearing House. WCCH determines the minimum amount of transaction deposit for each
market cleared. The value of a transaction margin is equal to the Clearing House Member’s total cash and non-cash
deposits furnished by the Member towards transaction and collateral margins, less the balance of liabilities arising
from transaction settlements and liabilities arising from collateral margins.
Collateral Margins
The value of a collateral margin is calculated for each brokerage house client, assuming the highest statistically
possible loss that may be incurred on closing the positions of an insolvent client. In order to determine the value
of collateral margins (initial and supplementary), positions taken by a brokerage house client are placed in baskets
formed according to delivery dates as adjusted for the position offset within each delivery period. The margins may
be deposited in cash or in a non-cash from, as allowed by the Management of WCCH. Non-cash deposits must not
exceed 80% of the value of collateral margins.
Guarantee Fund
The guarantee fund is a joint and several fund created from payments made by Clearing House Members,
organised separately for positions opened on gas futures and electricity futures, which may be used in case of a
Clearing House Member’s insolvency if the margins prove insufficient to close the position.
7
GAS TRADING ORGANISATION
● The Warsaw Commodity Clearing House is responsible for clearing and settlement services in respect of
transactions made on all markets operated by the Polish Power Exchange. The launch of the Exchange Clearing
House has enabled POLPX to continue trading in forward contracts for the delivery of electricity. The Exchange
Clearing House is POLPX’s partner in cross-border electricity trade as part of the market coupling project.
● Each transaction will be recorded by the WCCH on relevant record-keeping and clearing accounts by means of
a clearing system assigned the auction participants.
● The value of collateral margins that accrue on each transaction will be calculated based on the transaction
price, gas volume contracted and risk factors.
● Transactions will be made and settled at the actual delivery price.
● Payments for the delivery will be made on the day of delivery.
Scheduling
(nomina�on)
Transac�on limits
(WCCH)
Transac�on details
Info
Payment orders,
Blocking orders
Clearing
confirma�on,
Cash balance
Brokerage House
8
Se�
lem
ent
rma
valu
�on
e
on m s
argi
ns
(POLPX)
Client order
submissions
Informa�on
on transac�ons
made
Brokerage
House
ent
e�lem
s
gins
h
s
a
C
r mar
o
Informa�on
f
d
e
block
on transac�ons
Funds
made
Exchange
orders
Client 1
Client 2
BENEFITS OF GAS TRADING ON POLPX
● Public access to information on gas/electricity prices and transaction volumes.
● Equal access to commodities such as gas and electricity by all market players.
● Access the full range of market products with different delivery times.
● Full security of financial settlements for all transactions (Clearing House, system of collateral margins)
● Transaction security/supervision of relevant regulatory authorities (Energy Regulatory Office, Polish Financial
Supervision Authority) over the functioning of the exchange market and exchange members’ activity - effective
protection against illegal price speculation.
● Fully anonymous trading environment.
● Open and transparent transaction rules.
● Aggregation of demand and supply for individual commodities.
● Objective market-driven energy prices.
● Equal access to market information.
● Equal participation conditions for all entities, regardless of size.
● Lowest transaction fees on the Polish market.
● State-of-the-art, user friendly order placement application CONDICO Trade by NASDAQ OMX, which is also used
by: N2EX – Nord Pool Spot/NASDAQ OMX , SICOM – SGX Singapore Indian Energy Exchange, OPCOM Romanian
Power Exchange.
9
Polish Power Exchange
23 Poleczki St, Building H
02-822 Warszawa
tel. +48 22 341 99 12
fax +48 22 341 99 10
● Members Relations Office
tel. +48 22 341 99 72
tel. +48 22 341 99 36
fax +48 22 341 99 20
e-mail: [email protected]
● Warsaw Commodity Clearing House
80 Jana Pawła II Av, unit F 35
00-175 Warszawa
Correspondence Address:
23 Poleczki St, Building H
02-822 Warszawa
WCCH Office
tel. +48 22 341 99 01
fax +48 22 341 99 83
10
www.tge.pl