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Join Mark and Eszter as they discuss the current state of European energy markets, new policies, and REMIT II.
By
Eszter Pontenagel
Welcome to today’s episode of Time2Talk, the Time2Market podcast, where we discuss all things energy and interesting developments in the industry with the industry’s biggest experts. Today’s guest is Mark Copley, CEO of Energy Traders Europe (FKA: EFET).
For your convenience, you can find a transcript of the episode below:
He is a veteran in the industry with a wealth of background. Mark Copley has been the CEO of what used to be called EFET and is now called Energy Traders Europe for the past three years. He’s been doing various things around energy for about 21 years. He’s been a regulator twice with Ofgem and was on the ACER board. He is a consultant for firms in the UK.
Energy Traders Europe does two broad things. It's a trade association covering people who trade electricity, gas, carbon, renewable attributes, and certificates. Essentially, anything you can trade in energy is what we're interested in.
They have a standardization arm designed to make trading easier and cheaper. So, if you're trading physical gas or power across Europe, you will be very familiar with the EFET Standard Contracts; you may even have encountered their free PPA Standards.
They create things that make the legal business of energy trading easier through standardization. If you're exchanging lots of data, you might also be familiar with the EFET Data Exchange Standards, including electronic information matching (EIM), electronic settlement matching (ESM), electronic regulatory reporting (ERR), and the list goes on. That standardization effort makes the industry more efficient.
And then there's the policy advocacy work they do, where they work with regulators, politicians, and member state governments in Brussels and across Europe to ensure that markets function as efficiently as possible.
Energy Traders Europe covers national, regional, and European markets and works to improve them across Europe.
If you're a member of Energy Traders Europe, you can participate in any of its working groups and task forces. Its committees deal with electricity, gas, market supervision, operations, and the legal side.
In each of those groups, you will get information about what's going on across Europe. You'll get to sit down with your peers and potential counterparties to discuss how the industry can react to those challenges, and you'll get a lot of information that will make your day job easier and quicker.
Energy is a heavily regulated sector. There's an awful lot of change. Sometimes, there is strength in a common voice, and Energy Traders Europe can provide a common voice for the industry towards politicians and policymakers so that, hopefully, the direction of travel can lead to more competitive, better-functioning markets. These are good, of course, for their members, but more fundamentally, for the customers through more security, lower prices, and quicker and cheaper decarbonization.
Where we stand at the moment is an interesting point. 2024 is quite an interesting year politically. There's much talk about the UK election and when it will be held. There's also a lot of talk about the upcoming European election. So, in an election year, what you're thinking about inevitably is what needs to happen over the next five years. And in the energy sector, we're sitting here following the COVID pandemic, where we saw the lowest demand levels in history. And then what people have come to call the energy crisis, where we saw hugely high price levels, volatility, and real harm to customers.
So, we're still in that period when people are trying to learn the lessons and, to some extent, recover from those twin crises. And then we're thinking about what Europe's political makeup will look like for the next five years.
But what doesn't stop simultaneously is the scale of the decarbonization challenge. Member states are trying to move forward with hydrogen strategies that will accelerate decarbonization. A lot is happening at both domestic and European levels, and there is a lot of political uncertainty.
So, what is Energy Traders Europe trying to do? To some extent, that kind of makes sense. But for Mark Copley, that election is a bit of an opportunity for markets. Over the next five years and 20 years, we've got to speed up the pace of decarbonization. We've got to keep energy affordable, and we've got to keep the security of supply high. Now, different parties will prioritize each of those parts of the triangle.
But fundamentally, you've got to deliver at least cost. And that's where the European market comes in. And Mark Copley believes that if we can enhance our markets, we have a good chance of delivering each of those things. But that is not something everybody necessarily agrees with. There's a lovely statistic from ACER that, during the energy crisis, there were 439 separate policy interventions in energy markets.
The energy markets we've created in Europe create a competitive advantage for Europe. There's lots of conversation about the need for jobs, growth, and competitiveness, and that's absolutely right. However, in Mark Copley’s opinion, those markets are key. We need to keep acting together.
We need to keep working sensibly, speed up the pace of integration, and not move back towards a set of national approaches. So, Mark Copley sees a little bit of a crossroads at the moment. He sees a little bit of a tipping point. Are we going to react to the threats of things like Russia together, or are we going to try and tackle it alone?
We have seen not only the future but also the past, which have been such turbulent years, and we are only licking our wounds and trying to approach the next years in the best way possible.
The COVID crisis, followed by the energy crisis, shows that Europe has an unbelievably flexible and well-functioning energy market. Anything dealing with the lowest demand in history, followed by the challenge of quickly getting off Russian gas, has to have something good about it.
As far as Mark Copley can work it out, it is the most competitive and best-functioning energy market on the planet. But we've seen many claims that the market is broken and that marginal pricing doesn't work. And we're seeing more and more countries think about things domestically.
A good example at the moment is Germany trying to cut the costs of filling gas storage during the energy crisis onto tariffs for exports to other countries. That is damaging to the internal market and reducing Europe's flexibility.
Mark Copley is most worried about more of those policies; it is a move away from that European, efficient, least-cost approach, which has served us well. There’s a nice British phrase: “Throwing the baby out with the bathwater.” So, he worries that we will throw the baby out with the bathwater, and we won't realize what we have until it's too late. Mark Copley doesn’t argue for anything different in Energy Traders Europe than he argued for when he was a regulator, and that shows you why the things they’re doing are so important for customers.
The first thing to reflect on is the achievement of reducing Russian gas volumes. It shows how the gas market is incredibly flexible.
“Because I've done this for a long period of time, the idea that the European gas flows will be going West-East, not East-West, is kind of mad. If someone had said that to me ten years ago, I would have thought they were crazy.” – Mark Copley, CEO of Energy Traders Europe.
The price reacted as it should because there was a scarce situation. And new sources of supply were brought in from other places in the world.
That's how the market should work. Some of those sources probably led to higher carbon emissions. But it's incredibly important that Europe has an ETS system that values that carbon, so that price was still reflected. What that means is that through that crisis, there were such strong incentives for innovation, demand reduction, and new sources of supply to come forward, and that's clearly what we're going to need if we're going to decarbonize.
So, the fact that we have a carbon pricing system that works well—it could, of course, work better if we were to link it to some other systems, particularly one in Mark Copley's own country, the UK—and that there is a system that adjusts as well to give a price signal is really important.
The really difficult thing about policymaking in Europe is that you've got three objectives to meet. If you go to one corner of the triangle, it's almost like an elastic band. If you pull it too far, it will snap back.
If you focus too much on the security of supply, you suddenly find that decarbonization slows down and affordability becomes harder. So, the real challenge for anyone making policy anywhere– and Mark Copley has had a little bit of exposure to this in the UK government– is that it's all balance, and no one's ever happy because you're constantly trying to balance three things.
We must have a robust, transparent market supervision and market surveillance regime in Europe.
“Sometimes people are surprised I say that. ‘Don't you want fewer rules?’ Well, you need trust in markets, data to be available, and sanctions if things go wrong. And that means you need well-resourced regulators and nice, stable frameworks.” — Mark Copley, CEO of Energy Traders Europe.
REMIT is just over ten years old. It just had its birthday, so it was prime time for an update. The update that happened recently has positive features and fewer positive features.
The parts of the reform that concerned Energy Traders Europe were originally proposals by the Commission to have very strong representation in the EU. In some quarters, this was read as having to move trading floors from outside the EU into the EU.
REMIT is about trusting markets and ensuring that if there is any market abuse, it is found and prosecuted. We don't wish to scare any listeners, but you can end up in jail for market abuse. There are criminal sanctions. You cannot engage in behavior that constitutes market manipulation, and that can include some things that you get very detailed very quickly, like wash trades and spoofing.
A whole lexicon of jargon sits below REMIT, and there are horrendously long and detailed user manuals that people will need to read to get into the market. So, one of Mark Copley's advice is that you will need to spend a lot of time on compliance and understanding what is out there. This is not a simple piece of legislation, but at its most simple, you need to report data on outages and market behavior so that regulators can assess that.
You also need to ensure that your trading behaviors don't constitute false and misleading information or market abuse.
REMIT II is an upgrade to the original legislation. For example, it focuses on additional transparency. There’s also a REMIT Information Reference Center, which attempts to take the data that exists and present it in a more user-friendly form, which is hard to argue with.
And then there are attempts to update a ten-year-old piece of regulation to reflect new forms of trading. Now, Algo’s probably the obvious one there. The problem with being a regulator is that you can never stop. The market keeps moving around you, so your rules need to keep up, or they start becoming problematic for you and the market.
There are also provisions in REMIT II that Energy Traders Europe were concerned about, like the one mentioned earlier, around needing to have a kind of trading function in the EU, which traders thought would be damaging to competition. But that requirement has since been reduced, for example. So, ACER is currently in the process of issuing some guidance to support these changes.
“That was certainly a threat in the initial draft of the proposals, but it's been turned down. So, I think there needs to be a representative, but that does not need to be a full trading floor, which was our worry initially. So, there will need to be a representative, a far less burdensome requirement than before.
And I'd like to think that maybe some of the pressure that our members managed to exert there helped get that to a point which I think is good for EU liquidity because no one wants to prevent entry into the markets.” — Mark Copley, CEO of Energy Traders Europe.
We see many inquiries, questions, and participants who would like to enter the European power markets or the energy industry generally. But they are very uncertain.
Engaging with the guidance is extremely important, and Energy Traders Europe’s market supervision committee spends an awful lot of time and effort on that. They are on some of ACER’s working groups and expert groups through their representatives. So, really, if you're out there thinking and worried about REMIT, you might want to think about why you're not members of Energy Traders Europe.
It's a really difficult question because Energy Traders Europe has 150 member companies that vary in size and geography. They recently had their first members from Kosovo and Azerbaijan. Some of Energy Traders Europe's members trade green certificates and are very active in green gas markets. Some are very large companies, such as Shell, and almost everything in between.
“One of the beauties of working in that organization is that everybody has a different set of priorities. I suppose it would normally start with ‘Have you got any idea what is going on in X?’ and then they would insert the name of the market or the country they’re particularly worried about.”—Mark Copley, CEO of Energy Traders Europe.
Twenty-six people work for Energy Traders Europe within their secretariat, and they rely on our members extremely heavily. Each of those people are real experts in what they do. For example, Romania recently issued a new law that said it would change its trader taxation rules, among other things.
As luck would have it, Vice-chair Luka, from Gen-i in Slovenia, spoke at a conference in Romania the following week. So, Energy Traders Europe’s experts quickly reviewed the law, and Luka made a presentation five days later in Romania. Then, they spoke to the ministry. Pawel, one of Mark Copley’s colleagues, is currently finalizing Energy Traders Europe’s response.
“So, we didn't necessarily know that was coming. But you've got a series of phone calls that say, ‘Oh, my word, have you seen this?’ And we swing into action and try to make sure that we harness the views of all of our members and then get that to the right people at the right time.
So, I'm very proud of the things we do like that.” — Mark Copley, CEO of Energy Traders Europe.
Energy Traders Europe has sent some very clear messages regarding the new taxation law as they continue to focus on that market and every market where they think improvements can be made.
Another piece of work Energy Traders Europe has recently done on behalf of their members is to summarize the barriers to competition in every electricity market in Southeastern Europe.
They have a sense of all the things they would like to see improved. This is one of those jobs, a bit like being a regulator, that does not stop. There is much that can be improved in these markets. They work well and deliver lots of value, but they can get an awful lot better.
“Energy's never been more political, so if you go through an energy crisis, you will always see a political response. So, at the moment, in that pre-election period, a huge amount is going on at the European level. So, the Electricity Market Design Proposal, which has been worked on over the last few months, is due to be adopted by the Belgian presidency in April.” — Mark Copley, CEO of Energy Traders Europe.
That's the conclusion of a long process that Mark's colleagues only partially led, and their electricity committee has played a fantastic role in. We've then got the Gas and Hydrogen Markets Decarbonization Package, which is also close to being finalized. That's a huge piece of legislation that examines, as the name suggests, gas markets, particularly those markets for green and decarbonized gases.
Energy Traders Europe has been following that extremely closely through our work in our gas committee, which my colleague Doug Wood, who many of our listeners have hopefully come across, leads. So, on our policy side, you've got three very large files reaching their conclusion: REMIT II, Electricity Market Design, and Gas and Hydrogen Markets Package.
On the legal side, which is more internal to Energy Traders Europe, they're updating their general agreement for bilateral trades. That is the basis for trading of physical products across Europe.
If you need to negotiate a separate contract with everybody you trade with, you'll spend a lot of time doing it. So, what Energy Traders Europe did many moons ago, long before Mark Copley joined the organization, came up with a standard contract that people could use as the basis for OTC trading. That standardization brings down costs, increases efficiency, and is a huge step towards creating a single market.
“So, we're proud of that. But just like REMIT, it needs an update. It needs to be more 21st-century, a bit more electronic, and more user-friendly. And that's the process we're going through at the moment.”—Mark Copley, CEO of Energy Traders Europe.
“People within the bubble and the industry know who EFET is. But if we reach out to a policymaker or a politician, they don't.
So, we want to put what we do front and center in our name so people know what we represent. It's an external move." — Mark Copley, CEO of Energy Traders Europe.
“We live in a world of difficult decisions and hard tradeoffs. If there was an easy answer, we would have found it over 25 years of liberalization. What we fail to recognize, and I say we here in the context of market participants, trade associations, and so on, is that everything is a tradeoff.
So, you have to balance different interests, objectives, etc. I could tell you that pure free markets are the best way to deliver everything. And I might believe that, but when I worked for the UK government if I went to see my minister and said to him, ‘Minister, what you need to do here is nothing. Don't react to this crisis. Just let the market react,’ he would have laughed in my face and told me he would lose his job politically.
So there needs to be a bit of pragmatism and realism, which means understanding the constraints people face and trying to work within them as best you can. And I certainly see Energy Traders Europe as a kind of partnership body for people.” — Mark Copley, CEO of Energy Traders Europe.
Energy Traders Europe will try to bring forward solutions that recognize constraints and work in the best interests of Europe overall because, ultimately, that's what markets do. They optimize within frameworks created by other people, and they're really good at it.
Besides the heavy compliance measures they must take, the legal constraints regarding the market mechanism in each country and market.
The first thing is that this market needs new entries. We need innovation. We need things to be shaken up.
“I think what I would say is: don't think it will be easy. This is going to be a world that changes fast from a technology perspective, a market perspective, a regulatory perspective, and a political perspective.”—Mark Copley, CEO of Energy Traders Europe.
The energy crisis has meant that energy is at the top of political agendas for governments across Europe. Energy keeps people in jobs; it affects every single one of our lives. So, there will be a lot of policy changes. There will be a lot of reactions to external circumstances, and probably, global geopolitics and the way things play out will ultimately drive the way the markets in Europe evolve.
“People often say to me, ‘Mark, look, so you were a regulator for nine years. You worked for the government, and now you work for many traders. Isn't that weird?’ And it's not because the energy market we're working to create is so positive for decarbonization.
You've got a little one; I've got a little one. We want the planet decarbonized for the good of our little ones. Security of supply: Well, actually, we can deliver that through markets. And affordability is incredibly important. Markets can help deliver choice and value as well.
And I really hope that we are going to work together to create something that is even better at dealing with these challenges rather than fragmenting back to 27 markets.”—Mark Copley, CEO of Energy Traders Europe.
Thank you for joining us for this episode of Time2Talk.
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Disclaimer: Time2Market ApS is not responsible for the completeness, accuracy, and actuality of the information provided. This article is intended for informational purposes only and should not be considered business or legal advice.
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