Assessment of potential impacts of regional virtual hubs on the forward markets

The EU electricity market reform has mandated the European Commission to assess the impact of virtual trading hubs on the liquidity of electricity forward markets. A new study conducted by Compass Lexecon on behalf of Energy Traders Europe, Eurelectric and Europex reveals that these hubs are likely to deter, rather than enhance, the liquidity of forward markets in Central and Southern Europe. Based on the quantitative analysis, the three associations call on policymakers to consolidate existing forward markets and prioritise proxy hedging via existing instruments over virtual trading hubs to increase forward market volumes, keep transaction costs stable and ultimately spare consumers greater energy costs.