European Energy Markets

Power markets are driven by fuel prices

Power markets are fundamentally driven by the underlying generation mix of coal, gas, oil and emissions. In addition, these markets are also driven by regional price drivers such as weather, hydro balance, economic activity and generation outages. Exchanges provide financially cleared markets where trades are cleared on exchanges, which limits credit-risk and secures price transparancy.

Each regional market is driven by a different set of underlying fundamentals

European Markets are in different stages of liberalization and countries have varying success with market liberalization. Markets are also fragmented with different levels of size and liquidity but are interrelated in terms of price levels and market coupling. Gas prices are driven by gas-to-gas competition versus Gas-to-oil competition through long term indexed contracts. European markets have different fundamental underlying structures e.g.: Germany is coal and gas driven; France is hydro and nuclear driven; Switzerland is hydro driven; Nordic is hydro and nuclear driven; Italy is thermally driven; Eastern European market are coal and nuclear driven. These distinctions and characteristics can be exploited through fundamental research and state dependent trading cases.

Resents shut down of nuclear power in Germany and the increase in wind generation, especially in the the north of Germany, are expected to create market dynamics which benefit ECMan's strategies and returns.

Fundamental expertise excels: by combining research in fundamental market dependencies and embedded underlying trends, superior returns are achieved, independent of market direction..

The modelling framework capitalises both on market movements and market levels:

  • Power markets are trending.

  • Industry structure creates systematic mispricing.

  • Dark and Spark spreads are mean reverting.

  • Extreme events are often under priced