Liquidity and Transparency of the Wholesale Electricity Market: The Duty to Trade on a Power Exchange

The paper discusses an energy regulation instrument that was introduced in the power sector in order to reduce inefficient in-group electricity trading that was a source of soaring electricity prices. The remedy was especially tailored to correct the market failure that occurred in the Polish power market as a result of both: (i) the termination of Long Term Contracts and (ii) the governmentally steered consolidation of the power sector that also involved vertical integration. Several behavioural and structural instruments are considered and the reasoning supporting selection of the most appropriate one is given. The outcomes of qualitative analysis confirm that the remedy applied, namely the introduction of the duty to trade on a power exchange (PX) into the Polish Energy Law, was a successful market reform. The research carried out in this paper contributes to scientific knowledge on regulatory and policy issues and the solutions adopted can be applied to other power markets facing similar problems as electricity markets are liberalised and the problem of liquidity and transparency of the wholesale power market is at stake. Although such a solution to problems mentioned above may not refer only to the European Union member states, it is worth notice that the duty to trade on the power exchange is currently discussed as a regulatory measure that may be used against dominant gas companies (within the concept of so called Energy Union). We strongly believe that our paper gives arguments that may be useful in a discussion on a wholesale energy markets both in the EU and non-EU countries.

Winner Paper of the 2014 ERRA Regulatory Research Award.