Reitz warns of government interference. The market works “very well”. He rejects price caps: “If there are market participants who are willing to conclude a trade, then it does not help if you forbid them to do so,” he said.
The EEX boss does not see the security of the energy supply at risk. “We don’t have a problem with quantities,” says Reitz.
Mr. Reitz, how do you rate the price increases on the electricity exchange in the past few weeks? Is this normal market development or do you also see market failures?
The prices only reflect how supply and demand relate to one another – no more and no less. There are fundamental reasons for the price spikes. When it comes to gas, they are on the supply side. The market works very well, it provides exactly the right information.
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Which?
For example, the information that the gas storage tank is low. There can be no question of a market failure at all.
Politicians want to intervene. What do you recommend?
Of course, I fully understand that efforts are being made to mitigate the effects of the price spikes. But I can only warn against intervening in the market. That would be the completely wrong signal. The market lives to a large extent from trust in stable framework conditions. If politicians want private investments in the energy sector, for example in renewable energies or in gas-fired power plants, then they have to let the price impulses of the market take effect.
The Spanish government has introduced a special tax on profit skimming on renewable energies. What do you make of it?
This is definitely the wrong way to go because it discourages potential investors. The Spanish government has therefore moved away from it again after a short time.
Secure prices
Energy traders are on their knees because they can no longer deliver at the prices they have promised their customers. Is that just bad luck – or is there a structural problem behind it?
If I, as a trader, make commitments and do not secure myself against the fact that I cannot keep these commitments, then serious problems can arise in certain market situations. Economic risks arose that shouldn’t be taken. The market participants who have hedged their prices via the stock exchange or other mechanisms, on the other hand, have a resilient business model even in extreme situations.
The Uniper case shows that hedging stock exchange transactions eats up an enormous amount of liquidity. Can’t that be organized differently?
If I procure future quantities at fixed prices, then collateral is necessary. There is no such thing as an exchange trading secured by clearing without collateral. Otherwise the functioning of the market as a whole would be jeopardized, because the market price risks are real, as we are currently seeing.
Reitz is convinced that there is no need for incentives to build gas-fired power plants.
(Photo: imago images / Future Image)
Only a small part of the electricity is traded on the exchange, but the exchange prices also influence the supply contracts in many cases. Is this a problem?
That’s not true at all. A multiple of the consumption is traded on the stock exchange. Let’s take German electricity consumption: Around half of annual consumption is traded directly on the spot market, i.e. very briefly within the day or for the next day. The long-term hedges run via the futures market. Six times consumption is traded there. So you can’t say that only a fraction of the electricity that is produced and consumed is traded on the exchange. The opposite is the case.
But the market price has a major impact on contracts that do not go through the exchange.
That’s correct. But there is nothing wrong with that – on the contrary, it makes sense. The exchange prices are based on a large population of traded electricity. Like gas, electricity is a homogeneous good for which there is only one price that should be determined as transparently as possible. And the stock exchange takes care of that.
Politics should remove barriers to investment
What do you think of demands from politicians to lower price caps?
I don’t think so. If there are market participants willing to make a trade, it doesn’t help if they are forbidden to do so. It’s kind of like turning off the lights so you can’t see a problem. The problem may then no longer be apparent, but it is not resolved. It makes sense that prices move. The importance of price signals should not be underestimated. They reveal scarcity and stimulate investment. And not only on the producer side, but also on the demand side, for example by making the construction and operation of electricity storage systems interesting and creating incentives to control consumption more flexibly and to use electricity or gas more efficiently.
Do we need state incentives for the construction of gas-fired power plants?
In my opinion, there is no need for incentives to build gas-fired power plants. Right now, the market is clearly providing the information that investments in gas-fired power plants are worthwhile. You can also clearly see that these investments are taking place – completely without subsidies. This now also applies to renewable energies. Policymakers should focus on removing barriers to investment by shortening approval procedures and increasing land availability.
France suggests that gas-fired power plants should no longer be price-setting. What do you think?
To do this, you would have to throw the entire system overboard. I don’t know how to do that. The proposal does not seem to me to be very well thought out.
According to your observation, what about security of supply?
Security of supply is a question of quantity. So I’m not worried about electricity or gas. We don’t have a quantity problem. The gas market is now a global market. The continents connect with each other via LNG.
The fact that the gas markets are growing together via LNG does not seem to have a price-dampening effect. So from the consumer’s point of view, this does not mean much.
We are in global competition, especially for LNG. Our major competitors are the major Asian markets of China, Japan and South Korea. The market participants there are currently prepared to pay a much higher price for gas. That is why many LNG tankers are heading in this direction. But that could be redirected tomorrow by offering higher prices. So there is no shortage of crowd. We have no problem with security of supply.
Role of CO2 certificates
Should the state keep gas stocks?
One can think about it. It is only important to then completely separate this supply from the market.
The prices for CO2 certificates have risen sharply recently. Is there an exaggeration in the market?
European emissions trading addresses the problem of excessively high CO2 emissions. The aim of trade is to reduce these emissions as efficiently as possible. The need for action is great. The price here is only the result of expected future volume reductions. The system works very well. With the European emissions trading scheme and the new national CO2 price for the heating and transport sectors, the German state earned 12.5 billion euros last year. The money can be used to encourage investment in climate-friendly technologies, and the effects of high carbon prices can be socially cushioned. Both are sensible, but that decision is a political decision.
Individual players are calling for trading in CO2 certificates to be limited to the plant operators. Brokers, banks and various trading houses would only artificially increase the price with their activities. What do you think?
Financial market participants play an important role in emissions trading. They provide liquidity so that positions can be opened and closed at any time. Second: Brokers and banks also very often act as service providers for industrial companies in order to give them access to the market. If this were forbidden, every small company would be forced to become a member of the stock exchange itself. That would be far too time-consuming and therefore does not make sense.
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