Price developments on the wholesale electricity market

On the European Energy Exchange (EEX), around one quarter of Germany's annual net electricity consumption is already being traded on the short-term wholesale electricity market while twice Germany's annual net electricity consumption is being traded on the futures market. Developments in wholesale electricity trading have a considerable impact on price formation for end customers and are closely linked to the modernisation of the energy sector and the demands of the ever-growing interaction between generation and consumption.

Assuming perfect competition, the variable costs of the most expensive power station currently in use determine the price on the wholesale electricity exchange. However, past experience has shown that due to a lack of transparency and low competition intensity, it is not only marginal costs that determine wholesale market prices, other factors also influence the situation, i.e., the inclusion of free emission certificates in price calculations, price speculation and market power.

Furthermore, the required gradual renewal of Europe's power stations calls for a future price level that will enable the redemption of investments in new power stations, i.e., prices that are above marginal costs and lead to much higher margins.

Price developments on the wholesale electricity market are extremely important for companies active in the market (power station operators, utilities and industry). A portfolio and risk management strategy that is geared precisely to these developments and which includes structured procurement is a key factor for success.