Abstract
ESMA (European Securities and Markets Authority) published in December 2014 a document about the regulation norms. In that document the ESMA proposed to skip the exemption option for energy companies for the guidelines of the financial instruments. From Jan. 3 2018 MiFID II (Markets in Financial Instruments II) expanded the catalogue of financial instruments to energy companies. MiFID II requires that – among others – energy companies have the obligations to include the product in position limits, tests for fulfilment of conditions for exclusion, and inclusion in the supervisory regime under the EMIR (European Market Infrastructure Regulation). The MiFID II is obligatory for all EU members.
Although there is a tendency for unbundling the several tasks in the energy sector, in some countries – like France – all tasks are concentrated in the hand of the state. At the other hand, in the Netherlands, Germany and the UK the tasks are divided among several parties. The financial relations between these parties are (partly) financial instruments.
This study is important for the electricity market. In this study we describe the financial relations between the several parties in the electricity market in the Netherlands. The focus will be on the question of who bears the financial risks on the future cash flows. We describe the working of the clearing and the margin requirements for a better understanding. This has never been done for any country. In the light of MiFID II this analysis can also be interesting for other EU countries.
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Notes
- 1.
There are several “markets” for balancing. There is a wholesale market between BRP’s. Furthermore, a bidding ladder organised by a TSO to support balancing. Thirdly there is an imbalance account between the TSO and BRP’s which also could be considered to have the characteristics of a market.
- 2.
Note that MiFID II is also important for CO-rights. However, that is not a topic for this study.
- 3.
In Sect. 2 we define clearinghouse and clearing member.
- 4.
A dispute between Serbia and Kosovo has disrupted the electric power grid for most of the Continent, making certain kinds of clocks—many of those on ovens, in heating systems and on radios—run up to six minutes slow. The slowdown began in mid-January 2018, and since then clocks in 25 countries, from Poland to Portugal and Denmark to Turkey have lost time. The fluctuation in the power supply is infinitesimally small—not nearly enough to make a meaningful difference for most powered devices—and if it was a brief disturbance, the effect on clocks might be too little to worry about. This disruption was caused by a discussion about the settlement of 113 GWh according to ENTSO-E, the association of European transport system operators, see https://www.entsoe.eu/news/2018/03/06/press-release-continuing-frequency-deviation-in-the-continental-european-power-system-originating-in-serbia-kosovo-political-solution-urgently-needed-in-addition-to-technical/.
- 5.
In 1998 one of the clearing members of the Dutch option market, ING Clearing, was facing solvency problems. ING clearing was an affiliate of the Dutch Insurance bank ING. Although it was a 100\(\%\) affiliate of ING, ING didn’t guarantee ING clearing. Due to the financial problems of ING Clearing the survival of the whole Dutch options market was at stake.
- 6.
Decision of the Authority for Consumers and Markets (ACM) of 21 April 2016, reference ACM/DE/2016/202151, laying down the conditions as referred to in Article 31 of the Electricity Act 1998 (Network Code Electricity).
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Dorsman, A.B., van Montfort, K. (2021). The Power Grid: From a Technical to a Finance Issue. Who Bears the Financial Risk?. In: Dorsman, A.B., Atici, K.B., Ulucan, A., Karan, M.B. (eds) Applied Operations Research and Financial Modelling in Energy. Springer, Cham. https://doi.org/10.1007/978-3-030-84981-8_12
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