Manoeuvring between supply and demand
Competition is what the free market
is all about, and the supply and trading of energy have gone
through turbulent times. Meanwhile, more than 10% of electricity
use is traded on the APX every year, and the trading floor has
made its energy company debut.
Supply and trading are two entirely different disciplines within
the energy market, yet they are often mentioned in the same
breath. This is hardly surprising, since they have many similarities.
Whoever supplies energy to the end user wants to buy and resell
his product as cheaply as possible. A flourishing trade in electricity
and gas has come about as a result of increased energy liberalisation,
which has caused prices to be determined according to the law
of supply and demand. The shrewdest market player can offer
the lowest prices to the client, and is thus a step ahead of
the competition.
As the grid-administration function was split further within
the traditional energy companies, the difference between the
trading and supply divisions became more marked. The supplying
company, originally little more than the client administration
responsible for sending and collecting periodic energy bills,
is now the commercial heart of the organisation. It has become
the most important point of reference for the client, the sales
and marketing office and the information counter. Client friendliness,
efficiency and service orientation are now central to this branch.
The three largest electricity-generating companies, Reliant,
Electrabel and E.ON Benelux all have their own supply and trading
company.
Customise
Particularly with the opening of
the market for medium-sized users from January 1st 2002, this
new supply company identity has come clearly to the fore. Suppliers
attempt to entice each other's clients with favourable, customised
contracts. In addition to energy, they offer a series of other
services, like advice on energy saving and the installation
of heating and cooling systems. Renewable energy has also become
an important product in its own right. The market for green
power has been entirely free since July 1st 2001, and consumers
now have the freedom to switch to another supplier.
Any company is free to offer energy in a liberalised energy
market. The opening-up of the market for medium-sized customers
therefore has attracted a series of newcomers to the market.
These are existing foreign companies, such as the German EnBW
and the Swedish Vattenfall, who supply commercial clients. Several
new companies are also active in the market, such as Spark Energy
(subsequently taken over by the generator Electrabel Nederland),
Energiebedrijf.com and Anode.
Practising
In anticipation of the opening-up
of the consumer market (expected on July 1st 2004), suppliers
may already 'practise' on the green-power market. However, a
permit is required from the Ministry of Economic Affairs in
order to supply consumers; the permit is issued by the regulator
DTe. Among the newcomers to the green power market are Echte
Energie, Greenchoice and Shell Stroom. The supply of regular
'grey' electricity and gas to small users is still reserved
for the traditional energy companies. Their tariffs for these
clients will be regulated by the DTe until the opening-up of
the market in 2004.
A new discipline in this arena is the trade in electricity and
gas. Although raw materials for energy generation were indeed
traded in the traditional, centrally-led energy market, trade
in the end product was unnecessary because tariffs were set
by the government and levelled out in a pooling system.
There is increasing competition in generation within the free
market, mutually between the Dutch generators but also with
imported gas or electricity. Suppliers also look for the most
favourable contract to meet their requirements. These are partly
long-term contracts, but a short-term market has come into existence
alongside these. The majority of this trade still takes place
via bilateral 'Over the Counter' (OTC) contracts, which have
a great degree of flexibility. In addition, the Amsterdam Power
Exchange (APX), established in 1999, is an exchange where electricity
for the following day is traded. Market parties can also make
use of a broker, an intermediary who mediates on behalf of a
client or other dealer.
The energy market is increasingly looking for opportunities
to apply the kind of derivatives generally accepted in the financial
world. The APX is also investigating the possibilities with
regard to a marketplace for financial derivates, such as futures
and forwards. In this way, parties can cover their market position
by 'insuring' themselves against ups and downs. For the time
being, the trade in such energy derivates takes place along
the bilateral route. New gas-dealing opportunities arise when
market parties can meet. An example is the Eurohub set up by
Gasunie on the German border. At this 'transfer centre' parties
from Germany, Norway and the Netherlands can deal in gas.
The largest Dutch energy companies now have their own trading
floors. This is not only the case for generation companies,
but also for major suppliers, such as Essent, Nuon and ENECO
Energie. Since the latter two hardly have any generation resources
to supply their own client base with energy, to a large extent
they are dependent on purchasing. NUON has announced its intention
to take over the Dutch power stations belonging to Reliant Energy,
an American company. In addition, over the years various foreign
companies have become active in Dutch energy trading, including
some from the United States, Great Britain and Germany. For
the time being, most confine themselves to the industrial market,
while a few have turned their attention to the market for medium-sized
clients.
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