Hungarian Gas Futures Could Be the Next Success Story
The Hungarian HUPX Group, which includes the HUPX power exchange, the CEEGEX gas exchange, and the HUDEX derivative energy exchange, is operating in a very competitive environment. Therefore, the group is continuously innovating and introducing many new initiatives and products on all its market segments in order to further increase liquidity and keep up with the competition, Júlia Lobenwein, Head of Sales at HUPX Group, told Energetika.NET in the middle of June. According to Lobenwein, CEEGEX seems to be the Group’s new success story this year, while the Hungarian gas futures on HUDEX could be the next rising star.
I will start with the intraday and day-ahead markets on the HUPX power exchange. The intraday market currently has 31 members, and the volumes on this market segment are growing. We can see that an increasing amount of volume is being traded on the exchange instead of on the OTC market, which can also be seen from the decreasing number of cleared OTC trades compared to the exchange trades. Additionally, we expect three new members on the intraday market in the coming months. We also see that more and more players, including power plants, are using the intraday market, apart from the renewable volumes appearing from the TSO.
What are the volumes being traded on the OTC market compared to the exchange on the intraday market?
On the intraday market so far about 26,000 MWh has been traded in 2018, whereas the volume of the OTC deals registered for clearing has amounted to 8,800 MWh. I am not sure how many intraday OTC volume trades have taken place outside of HUPX.
On 27 June HUPX introduced a shorter lead time of 90 minutes on the intraday market as part of its development plan for 2018. In the future, the exchange operator intends to shorten the lead time on its intraday market to 60 minutes (MORE).
The other development on the intraday market is that more KÁT volumes (the TSO’s renewable electricity offtake obligation) will be traded by the TSO as of 1 July. The renewable generators will be obliged to send a new schedule during the delivery day, and the difference between the day-ahead and the intraday volumes will have to appear on the intraday market. We believe that this too will be a good push for liquidity.
Another big development is the DCP (direct clearing participant) model.
What does this entail?
This means that if a smaller company would like to join the exchange (HUPX only), it can directly clear with the ECC (European Commodity Clearing), without choosing a clearing member. The company, through its bank account at the settlement bank, can clear directly with the ECC. This is a good opportunity for smaller companies which wish to be part of the intraday or day-ahead market and reduce costs.
A new trend on the intraday market is that we are talking with independent software vendors to offer automated trading solutions on the HUPX intraday market. Similar to the German market these “robots” will bring further liquidity to the market.
How do your members view the possibility of using automated trading?
I know that some of our members have already developed their own software and a lot of other companies are also looking at the automated trading tools available on the market. In Western Europe this is very common. We see a tendency whereby an increasing number of companies will be using this opportunity to optimise their operations.
What about the new developments on the HUPX day-ahead market?
The Hungarian and Serbian power exchanges, HUPX and SEEPEX, announced in February this year that they plan to merge their spot power businesses, thus creating a strong cross-regional power exchange in the Central and South Eastern European region (MORE). We do not have any official deadlines yet, but I can say that we are working very hard on his project.
Why did you decide on this co-operation with SEEPEX?
I think it is in everyone’s interest to have one strong exchange for the region. It is also better for HUPX to grow with other partner exchanges and to expand outside of Hungary and for SEEPEX to have a strong partner to increase liquidity.
In the SEE region small power exchanges are emerging as each country wants to have its own exchange. Do you then see co-operation, such as the one between HUPX and SEEPEX, as a way forward for the exchange business?
Yes, definitely. We are open to discussions for any exchange in the Balkans to join this co-operation.
Is there anything else you would like to point out regarding the day-ahead market?
Volumes on the day-ahead market are still very good - about 1.5 TWh per month. We have 58 members, and new companies are still entering the market, which is a good thing. We have also been working on the market coupling with Western Europe.
Do you see liquidity moving from day-ahead to intraday?
This is not currently happening. However, it is not impossible that it could happen with further market developments. The closer in time we get to delivery, the more accurate forecasts are available for producers and consumers in terms of their actual consumption and production. Currently everyone trades day-ahead and they only leave the volumes which are left over or impossible to trade earlier for the intraday market. As was the case in Western Europe, with growing liquidity this will change and the market participants will actively take intraday positions.
Are there then still a lot of opportunities on the intraday market?
Yes, especially with the increasing production of renewable power in the region and with XBID coming online next year.
How much renewable electricity volume do you expect to be traded on the intraday?
It is very difficult to forecast because currently 100% of the KÁT renewable volume is traded on the day-ahead market. As of 1 July, the difference between the day-ahead and intraday forecast will appear on the intraday market. If there is less wind than was forecast or there is a change in production, then this will have to be bought or sold on the intraday market.
Slovenia and Hungary also plan to finally put in place a power interconnection between the countries. Will this bring additional volumes to HUPX?
Definitely. One of the reasons why HUPX is so successful is that Hungary has so many borders, and it is in the centre of Europe, so the electricity can flow from all directions. In my view, the more interconnections we have the more opportunities traders have and the more volumes can end up on the exchange.
What about the developments on the Hungarian gas market?
The gas market seems to be our new success story this year. HUPX launched the gas market segment - CEEGEX - in 2013. Last year we visited a lot of the market participants to ask them what they need to make this exchange liquid. We lowered our transaction fees significantly and introduced a temporary entrance fee holiday. Additionally, CEEGEX switched from HUF- to EUR-based trading on 1 October 2017. In 2017 we admitted eight new members, and a further four new members this year. Today we have 25 members on CEEGEX. Additionally, the volumes grew from a few GWh to almost 1 TWh per month in the winter. I am really happy to see that the gas exchange is growing.
And we haven’t yet stopped. We also want to introduce new products, such as the balance of month for example. We are also going to work on improving our systems to increase confidence in the market. By the end of the year we expect over 30 companies will be trading on CEEGEX.
Are new links - such as the plan to link Hungary with the Turkish Stream pipeline by the end of 2019 - another contributing factor to increasing optimism and activity on your gas market?
Well we see that the traders on the Hungarian market are increasingly using the possibilities arising from the interconnections with the neighbouring countries. They are looking at the Austrian and Ukrainian markets, and gas in the Balkans, and not forgetting the new opportunities in Romania.
Bulgaria is planning a Balkan gas hub. Do you see this as possible competition or just another possibility for growing gas trade?
To be honest, I think the more traders we have in this region, the more volumes are traded, as the know-how and the opportunities grow. On the other hand, too many exchanges can take liquidity away from each other. However, Bulgaria is not so close to the Hungarian gas market that we would view it as a threat.
How do you view new technologies, such as blockchain, that are being developed?
Of course, we have to keep an eye on the competition, and any other developments on the markets, therefore we are also following the developments in the area of blockchain technology. Big European exchanges are taking an active part in this area. It can be an opportunity, and, at the same time, it can also be a challenge.
If we conclude with the newest market segment - the Hungarian derivative energy exchange, HUDEX …
Both power and gas future products can be found on HUDEX, which has 29 members. It is possible to trade monthly and quarterly products for Hungarian gas, and weekly, monthly, quarterly, and yearly products for Hungarian power.
With regards to volumes, the HUDEX power market started the year very strongly and we are now looking for new market makers. We think that we have made a lot of improvements there, e.g. we introduced an automated clearing solution on 10 April. We have also extended our product line with more monthly and quarterly products to match our competition, and we have also extended our opening hours from 8am to 6pm. We are currently working on introducing a financial day-ahead product.
Furthermore, we are also looking at introducing other products and other markets that we can enter.
How do you decide on new products - is this a push from the members or do you look at the market and decide which products are needed?
It is both. We are operating in a very competitive environment. We are constantly looking for possibilities, for niche products where we can improve, and we discuss ideas with our members. The introduction of seasonal and yearly products for gas on HUDEX will be some of the further improvements this year.
Author: Tanja Srnovršnik Volarič