Serbia: SEEPEX exchange and regional market linking for cross border trading will be improved claim from EMS TSO grid network company

5. November 2014. / News Serbia Energy

Serbia occupies a central spot in the region with its eight boundaries, which proves a high level of cross-border trade. Market linking will be greatly facilitated by application of ETC platform for trading which is completely compatible to PCR platform, and also thanks to the EPEX SPOT experience in connecting European SPOT markets stated Mr. Miloš Mladenović, Director for corporative affairs for the international and regulatory relations in Serbia TSO Grid operator company EMS.

As Mr. Mladenović points out, the subject of the Agreement between EMS and EPEX SPOT is establishment and development of the organized SPOT electricity market in Serbia in accordance with the European target model, with providing respective platform for the envisaged establishment of the regional day-ahead market. EMS and EPEX plan to form a joint venture Company SEEPEX- customer oriented Company formed through joint investments od EMS and EPEX SPOT in the ownership relation 72% towards 25% in the initial phase. The main goal of SEEPEX is to meet the high standards regarding services to the clients, and main principles of SEEPEX will be neutrality, liquidity, transparency and fair cooperation with regulatory bodies.

EPEX SPOT and EMS are completely dedicated to the establishment of SEEPEX and that is the response to the long term need of both Serbian and regional electricity market for the integration into the unique European electricity market, pointed out our interlocutor.

On the question what potential risks the cooperation could bring, Mr. Mladenović answers that this kind of multicultural and technical cooperation always brings with it certain challenges, but as he says, they are completely ready and capable to successfully overcome all possible obstacles. EMS is in Serbia the key interested party that provide market infrastructure and enables enforceability and sustainability of all concepts, while EPEX SPOT possesses significant experience in establishing and development of independent or affiliated day-ahead and intraday electricity market in the entire Europe.

Ownership relationship of 75:25 is defined in accordance with the relevant decision of the Government taking into account all the aspects, Mr. Mladenović says that this ratio is adequate and well balanced relationship in the shareholder structure, while later on opening of the shareholder structure of the Company could be considered for other partners.

When it comes to the further development of SEEPEX, it could also be considered at a later stage, regarding market linking or some other type of cooperation. By using EPEX system, trading should help in the development of regional market of South-Eastern Europe and its integration with the unique electricity market of EU, explains Mr. Mladenović.

EMS can freely trade in the organized market, i.e. buy energy for compensating losses in the transfer grid. SEEPEX will be a separate Company in relation to EMS, which will ensure the strict observance of the non-discrimination principle and transparency regarding the relationship towards the members. Confidential market data will not be disclosed to the shareholders. The principle of confidentiality shall take into account the internal independent office for the market monitoring, and according to Mr. Marković, kind of “Chinese wall“will be established between the EMS roll as the market participant and shareholder’s roll that SEEPEX has.

Regarding the corporative details, namely how many employees will common company has, Mr. Mladenović says that it is too early to give the specific details, but the aim is to fill in the places with the best candidates. The corporate head office will be in Belgrade.

Employees in SEEPEX will be in charge of the relationship with the market participants, internal supervision of the organized market as the link to the relevant state and regulatory subjects in Serbia, of the relations with the neighboring energy exchange regarding market adhesion, as well as of the monitoring of the market operations realization.

Asked whether the stock market will begin during the first quarter of 2015, Mr. Mladenović responds that the exact date from the beginning of functioning will be announced later or better to say when all legal and regulatory compliances get collected, as well as when it starts with the necessary testing of the business IT system. But as he says, it certainly should happen in the first quarter of 2015. Regarding the establishment of the joint venture it is conditioned by the consent of the relevant bodies as well as the usual administrative procedure. Detail time frame will be announced later. The same applies also for the beginning of the IT platform testing.

As for the trading platform and system that is going to be used, SEEPEX daily auctions are planned to be organized with the system EPEX Trading System that is being gradually introduced in the EPEX SPOT markets in France, Germany, Austria and Switzerland as well as on the Hungarian market. At present, over 200 different companies use ETS and more than 920 beneficiaries are connected to the system. The introduction of the identical system and procedures in Serbia, as the best European praxis, would undoubtedly help in establishment of trust between SEEPEX end its members.

As explained by our interlocutor, technical parameters of the daily auction have not been defined in detail and are under review. What is certain is that, in accordance with the best European practice, they will be quite similar to the ones applied on other EPEX daily auctions, as well as that they will be well adjusted to the requirements of Serbian and regional market.

To the question about how many energy will be traded with on SEEPEX and how many members are planned for the platform to be launched, the interlocutor replied that there were more than 30 balance responsible parties, as registered in May 2014, and the aim and expectations are, immediately after the operation start, to reach the liquidity level of 10 % of the total electricity consumption in Serbia. Mr. Mladenović pointed out that a success of the electricity stock market was significantly based on the trust of its users, i.e. participants on the electricity market. For that reason, SEEPEX is completely committed to setting up the organization, business operations, team and IT platform, in accordance with the best European practice, leading to the formation of the reliable and robust referent price.

Fees range has not yet been defined, but as pointed out by the interlocutor, it was planned to form the participation fees on SEEPES in accordance with the existing ones valid on EPEX SPOT market, as well as to be adjusted to the size and scope of the Serbian market and degree of development of the day-ahead market in Serbia.

As far as the connecting the market to the adjacent countries is concerned, Serbia is in compliance with the European objective model for establishing unique internal electricity market in the EU, totally devoted to connecting its market to the neighboring markets, explained Mr. Mladenović. Serbia occupies a central spot in the region with its eight boundaries, which proves a high level of cross-border trade. Market linking will be greatly facilitated by application of ETC platform for trading which is completely compatible to PCR platform, and also thanks to the EPEX SPOT experience in connecting European SPOT markets. Given the complex nature of the very process, it is still early to define a concrete time frame.

In the interview for the “Elektromreža Srbije” newspapers, Mr. Mladenović said that the discussion about EMS and SEEPEX joining the current projects of linking markets together had started, above all on including the so–called 4M MC project encompassing Hungary, Romania, the Czech Republic and Slovakia. The first contacts at the level of transmission system operators and regulators have already been made and cooperation detailing is under way.

As for the benefits of SEEPEX for the market participants, Mr. Mladenović explained that organized market provided centralized, user-friendly infrastructure, where all bids are placed in one spot, in order to define hourly optimum prices on the offer and demand basis. Thus obtained market prices are definitely more relevant than those formed on the bilateral market, since, given the organized market centers liquidity on the market, it is easier to find compatible offer this way than without the infrastructure that stock market offers.

The trading rules on the electricity market are public and the same for all society members. Centralized function of the financial settlement with central intermediary, i.e partner (clearing house) will increase the financial security of the market participants, and therefore reduce the financial risks. The platform and services offered by SEEPEX will strengthen the European integration project to a great extent, which directly leads to the improvement of the investment frame in the Energy field.

To the question whether EPS will be a factor that will have influence on the establishing the market, Mr. Mladenović replied that it was expected that EPS would be very active market participant and contributing to reaching satisfactory liquidity of the organized market. He pointed out that based on previous discussions, it could be said that EPS gave complete support to making SEEPEX operational as soon as possible and planned to have an active role on the organized market.

Concerning the reactions from the EPEX members on new company formation, the corporate director for international and regulatory relations said that market participants welcomed the establishment of the organized market in any market area, and especially when it comes to trading and clearing procedures being complied with the existing practices and processes as much as possible. As he emphasized, the intention is to meet to the wider community needs when SEEPES starts working.

Our interlocutor also added that they are focused on the implementation of the reliable and liquid platform for the day-ahead electricity market, while introducing other products will ensue in the subsequent development phase. When it comes to the clearing activities, the relevant financial institution will be engaged to provide regular financial management risks and to guarantee physical delivery of the agreed transactions on the market. As for the realization of ESS engagement, it will be discussed and announced in the subsequent phase, Mr. Miloš Mladenović concluded.

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