The activity of the GPW Group on the commodity market is concentrated in the Polish Power Exchange Group which is comprised of POLPX, its subsidiary the Warsaw Commodity Clearing House, as well as the OTC platform InfoEngine. The activity of the Polish Power Exchange includes:
- operation of a commodity exchange which offers trade among others in:
- natural gas,
- emission allowances,
- property rights in certificates of origin of electricity, certificates of origin of biogas and energy efficiency certificates
- commodity derivatives settled in cash;
- operation of the Register of Certificates of Origin and the Register of Guarantees of Origin;
- operation of the trade reporting system RRM TGE;
- clearing of transactions on the commodity exchange;
- operation of an OTC commodity trading platform.
Trade on POLPX commodity markets
Day-Ahead and Intra-Day Market
The Day-Ahead and Intra-Day Market is a market in electricity with physical delivery and offers short-term electricity buy and sell transactions (spot market). This POLPX market lists hourly instruments for each hour of delivery day as well as block instruments. Trade on the Day-Ahead Market takes place two days before and one day before the day of delivery. Trade on the Intra-Day Market takes place one day before the day of delivery and on the day of delivery.
The volume of spot trade in electricity was 27.6 TWh in 2016, an increase of 9.9% year on year and a historical high. The volume increased among others due to the start-up of a link on the border with Lithuania as part of Market Coupling.
Volume of trade in electricity on the Day-Ahead and Intra-Day Market [TWh]
Commodity Forward Instruments Market in Electricity
The Commodity Forward Instruments Market in electricity offers trade in standard forward instruments for delivery of the same quantity of electricity on every hour of delivery. Contracts are executed on a weekly, monthly, quarterly and annual basis.
The volume of trade in electricity on the Commodity Forward Instruments Market was 99.0 TWh in 2016, a decrease of 38.7% year on year. The decrease in the volume of trade was due among others to the reduced volume of mandatory sales of energy on the exchange under Article 49a(2) of the Energy Law.
Volume of trade in electricity on the Commodity Forward Instruments Market [TWh]
Day-Ahead and Intra-Day Market in Gas
In December 2012, POLPX launched a spot market in natural gas and opened trade on the Day-Ahead Market in Gas (RDNg). The Day-Ahead Market in Gas lists the following types of contracts: BASE with delivery on 24 hours of the next day of the same quantity of gas in every hour of the day, and WEEKEND with delivery on two days (Saturday and Sunday) of the same quantity of gas in every hour of the day (between 47 and 49 hours). On 30 July 2014, POLPX launched the Intra-Day Market in gas. The Intra-Day Market in gas lists hourly instruments with delivery on the day of trading.
The total volume of trade on the gas spot markets was 24.6 TWh in 2016, representing a share of 21.5% in the total volume of the gas market. The share increased by 76.6% year on year. The high share of the Day-Ahead and Intra-Day Market in Gas suggests that POLPX is a highly liquid trading platform for the balancing market. The spot market also performs an important role for the operator Gaz-System whose regulations include a formula for the calculation of the average settlement price for balancing.
Volume of trade in natural gas on the Day-Ahead and Intra-Day Market [TWh]
Commodity Forward Instruments Market in Gas
Since 20 December 2012, POLPX offers trade in forward instruments with physical delivery of natural gas on the Commodity Forward Instruments Market. It offers trade in standard forward products for delivery of natural gas in the same quantity in the exercise hours on a weekly, monthly, quarterly, seasonal and annual basis. Trade is available in BASE contracts with delivery of gas on 24 hours of the day.
The total volume of trade on the Commodity Forward Instruments Market in gas was 89.9 TWh in 2016, a decrease of 3.3% year on year.
Volume of trade in natural gas on the Commodity Forward Instruments Market [TWh]
Property Rights Market
POLPX operates a Property Rights Market in certificates of origin of electricity produced:
- from renewable energy sources (PMOZE and PMOZE_A, known as green certificates),
- in high-efficiency cogeneration (PMGM, known as yellow certificates; PMEC, known as red certificates; and PMMET, known as purple certificates),
Furthermore, the Property Rights Market lists:
- property rights in certificates of origin of biogas (PMBG, known as brown certificates),
- property rights in certificates of origin of agricultural biogas (PMOZE-BIO, known as blue certificates),
- property rights in energy efficiency certificates (PMEF, known as white certificates).
The Property Rights Market is a part of the support scheme for producers of energy from renewable energy sources. It allows producers of energy from renewable energy sources, cogeneration, biogas and holders of energy efficiency certificates to sell property rights, and energy operators required to pay substitution fees or to cancel certificates of origin to meet that obligation.
The volume of trade on the Property Rights Market is driven by the number of certificates issued in the Register of Certificates of Origin: increased production of energy generates the obligation to issue more certificates of origin, which in turn generates an increase of the volume of certificates of origin available on the market.
The total volume of trade in property rights for electricity on the spot market was 50.2 TWh in 2016 compared to 58.9 TWh in 2015, a decrease of 14.9% year on year. At the same time, the volume of trade in property rights to certificates of energy efficiency increased sharply year on year from 82.3 ktoe in 2015 to 314.7 ktoe in 2016.
In addition, in January 2016, POLPX introduced to trading futures on property rights to certificates of origin of energy produced from renewable energy sources, which allow market participants to hedge the price and delivery of property rights in the future. The volume of trade in property rights on the derivatives market was 0.5 TWh in 2016.
Volume of trade in property rights to certificates of origin [TWh]
The volume of trade in property rights in certificates of origin of electricity generated from renewable energy sources was 24.0 TWh in 2016, a decrease of 10.1% year on year. The supply side, i.e., the volume of issued certificates of origin of RES, shrank considerably, affecting trade on the RES property rights market in 2016. A decrease of the volume of issued certificates of origin always results in lower trading volumes.
The volume of trade in certificates of origin of energy from cogeneration, i.e., red and yellow certificates, was 26.2 TWh (a decrease of 18.8% year on year).
Structure of the volume of trade in property rights in 2016 by type of certificate
REGISTER OF CERTIFICATES OF ORIGIN
The Register of Certificates of Origin is a system of registration and recording of:
- certificates of origin which confirm that electricity was generated in high-efficiency cogeneration;
- certificates of origin which confirm that electricity was generated from renewable energy sources (RES);
- certificates of origin which confirm that agricultural biogas was produced and introduced to the gas distribution network;
- energy efficiency certificates which confirm that the project improved energy efficiency;
and recording of property rights under such certificates.
The main functions of the Register of Certificates of Origin include:
- to identify entities entitled to property rights in certificates of origin;
- to identify property rights under certificates of origin and the corresponding quantity of electricity;
- to register certificates of origin and the resulting property rights;
- to record transactions in property rights and balances of property rights in certificates of origin;
- to issue documents confirming property right balances in the register, used by the Energy Regulatory Office for cancellation of certificates of origin.
Certificates Issued and Cancelled (Register of Certificates of Origin)
RES – Green Certificates
In 2016, the volume of issued green certificates was 18.9 TWh, a decrease of 19.0% year on year. The decrease in the volume of issued green certificates followed the implementation of RES Act provisions which eliminated support for large hydroenergy projects (installed capacity above 5MW) with green certificates and limited the volumes of certificates of origin issued to multi-fuel combustion technologies. The decrease was partly offset by the development of other technologies, mainly wind energy.
Volume of issued RES property rights [TWh]
The volume of certificates cancelled in a year depends on the Energy Regulatory Office. POLPX received relatively many cancellation decisions from the Energy Regulatory Office in 2016. The total volume of green certificates cancelled was 16.8 TWh in 2016, compared to 9.1 TWh in 2015. POLPX received exceptionally few cancellation decisions from the Energy Regulatory Office in 2015, resulting in a significant year-on-year increase in 2016.
Volume of cancelled RES property rights [TWh]
Cogeneration: Red, Yellow, and Purple Certificates
The total volume of issued co-generation certificates was 28.3 TWh in 2016, an increase of 3.8% year on year. The volume of issued co-generation certificates increased very moderately in 2016. The legal environment is stable and so are the volumes of certificates issued by the Energy Regulatory Office.
Volume of issued cogeneration property rights (TWh)
The total volume of red, yellow, and purple certificates cancelled in 2016 was 26.1 TWh, compared to 13.2 TWh in 2015. Similar to certificates of origin of RES, POLPX received exceptionally few Energy Regulatory Office decisions cancelling red, yellow, and purple certificates in 2015, resulting in a significant year-on-year increase in 2016. In the current legal system, the market of red, yellow, and purple certificates includes three series of instruments with a tenor of 18 months: one full calendar year plus another six months of the following year as required by law for eligible companies to complete mandatory cancellation of co-generation certificates. There could be differences in trading volumes from year to year because subsequent series of 18-month instruments overlap during the year. The situation is stable from the perspective of an instrument rather than a calendar year. This situation has prevailed over the past few years.
Volume of cancelled cogeneration property rights (TWh)
Energy Efficiency: White Certificates
In July 2016, the Energy Regulatory Office selected bids in the fourth tender for energy efficiency improvement projects. The volume of the winning bids was more than double the volume in the first three tenders combined, resulting in a significant increase in the volume of energy efficiency certificates registered in the Register of Certificates of Origin. The boosted supply combined with an unsaturated market drove an increase in turnover and cancellations.
Number of Participants of the Register of Certificates of Origin
The Register of Certificates of Origin had 2,970 participants at the end of 2016. In 2016, 431 companies applied to the POLPX Register Department (422 companies in 2015).
Many of the new participants are beneficiaries of the system of white certificates, i.e., energy efficiency certificates. The increase in H2 2015 was driven by the postponement by six months of the effective date of the Renewable Energy Sources Act (to 1 July 2016) as well as changes in the support system for producers of energy from renewable energy sources. Many market players were keen to complete investments before the effective date of Chapter 4 of the RES Act. The increase in the number of participants in 2016 was driven by the completion of the Energy Regulatory Office’s fourth PMEC tender.
Number of participants of the POLPX Register of Certificates of Origin
NUMBER OF POLPX MEMBERS
POLPX had 51 members at the end of 2016. The development of the Exchange Broker training programme helped to attract six new Exchange Members and facilitated active participation on the market, especially for foreign entities as training and examinations are offered both in Polish and English. A new market maker was acquired for the Exchange Commodity Market.
Number of POLPX members
REGISTER OF GUARANTEES OF ORIGIN
Directive 2009/28/EC which imposes the obligation to set up registers of guarantees of origin in the European Union member states was implemented in Poland in an amendment of the Energy Law of 26 July 2013, known as the small energy tripack, effective as of 11 September 2013. It requires POLPX to operate a Register of Guarantees of Origin and to organise trade in guarantees of origin.
In September 2014, POLPX launched the Register of Guarantees of Origin which registers energy from renewable sources and OTC trade in environmental benefits of its production. Unlike certificates of origin, guarantees do not involve property rights or a support scheme for renewable energy sources: they are issued for information only.
There is no obligation to acquire guarantees but they can be used by entities to prove that a certain quantity of consumed energy was generated from renewable sources. POLPX offers trade in guarantees of origin of energy since November 2014.
According to the regulations, the Energy Regulatory Office issues guarantees of origin which are then uploaded to the IT system of the Register of Guarantees of Origin operated by POLPX. System users can trade in guarantees of origin or transfer them to end users as proof that energy was generated from renewable sources.
The volumes of guarantees of origin registered in the Register of Guarantees of Origin increased substantially in 2016. Producers of electricity from RES increasingly appreciate the benefits of guarantees as an additional source of income. Unfortunately, this did not drive the volumes of other operations performed by the Register, which decreased moderately year on year in 2016. The number of participants of the register increased significantly from 157 at the end of 2015 to 255 at the end of 2016.
Register of Guarantees of Origin
TRADE REPORTING – POLPX RRM
Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT) and its Implementing Regulations require market participants to report orders and trades on the wholesale electricity and gas market to the Agency for Cooperation of Energy Regulators (ACER).
Under the REMIT Implementing Regulations, the obligation to report trades on organised trading platforms took effect on 7 October 2015. As of that date, all POLPX energy and gas market participants are required to report their orders and trades on those markets. The OTC trade reporting obligation took effect on 7 April 2016.
Under REMIT and its Implementing Regulations, only Registered Reporting Mechanisms (RRM) authorised by ACER are eligible to report trades.
POLPX RRM Trade Reporting Service
The POLPX RRM reporting service supports:
- reporting of orders and trades on organised trading platforms (as of 07.10.2015);
- reporting of OTC trades (as of 07.04.2016);
- backloading of trades concluded before the effective date of the reporting obligation for the given category of contracts (07.10.2015 - 07.07.2016);
in compliance with the requirements of Article 8 of REMIT.
Until the end of 2016, there were:
- 10,338,015 reported operations on exchange orders
- 4,822,119 reported exchange orders
- 1,856,270 reported exchange transactions
- more than 35,000 reported OTC transactions
- more than 52,000 exchange transactions sent to ARIS
- more than 10,000 OTC transactions sent to ARIS
- reporting services for more than 480 clients – ACER has registered 557 entities, which means that we report for more than 85% of participants of the Polish energy market.
More than 1,250 users have access to the POLPX RRM system.
FINANCIAL INSTRUMENTS MARKET
In February 2015, POLPX was authorised by the Minister of Finance to operate a financial instrument exchange. The decision of the Minister of Finance allowed POLPX to open market consultations on the structure of new instruments. As a result, following the approval given by the Polish Financial Supervision Authority for the terms of trade in electricity futures programmes, POLPX launched the Financial Instruments Market in November 2015.
Market participants were offered trade in futures based on electricity prices, later to be followed by instruments linked to the price of natural gas. The terms of operation of the POLPX Financial Instruments Market are similar to those applicable for years on the GPW futures market. The underlying instrument is the TGe24 index calculated on the basis of transactions at the first fixing on the Day-Ahead Market in electricity. Eligible as members of the POLPX Financial Instruments Market are local and international investment firms and other buyers and sellers of financial instruments acting on own account, provided that they fulfil the conditions of trading on the regulated market.
Key elements of further development of the financial market and other markets operated by the Polish Power Exchange include their alignment and compliance with MiFID II by 3 January 2018. On the one hand, the existing Financial Instruments Market must be harmonised with the MiFID II requirements. On the other hand, considering that the position of both European and Polish supervisory authorities suggests that the Commodity Forward Instruments Market operated by POLPX will be unable to continue operating in its current structure after the implementation of MiFID II, POLPX is working to put in place the following solutions in close consultation with market participants:
- application for authorisation as an operator of an organised trading platform (OTF) upon the issuance of regulations which provide a legal basis in the national legal system;
- extension of the product range of the Financial Instruments Market operated by POLPX to include futures (mainly on gas and electricity) with physical delivery or option of physical delivery.
The preferred strategy of POLPX’s harmonisation with the requirements of MiFID II to the extent of the Commodity Forward Instruments Market will shortly be discussed by POLPX with all interested national regulators: the Ministry of Finance, the Ministry of Energy, the Energy Regulatory Office, and the Polish Financial Supervision Authority.
The Warsaw Commodity Clearing House (IRGiT), which is a subsidiary of POLPX, offers clearing of transactions of POLPX members on its markets.
In 2016, IRGiT continued operations launched in 2010 as an exchange clearing house. Since 2010, IRGiT is authorised by the Polish Financial Supervision Authority to clear and settle transactions in financial instruments on the exchange and OTC regulated market.
Currently IRGiT clears the full volume of electricity and gas sold on the exchange market in Poland. The total volume of cleared transactions in electricity was 126.7 TWh while the total volume of cleared transactions in gas was 114.5 TWh in 2016.
Since 4 November 2015, based on state-of-the-arty IT systems and a proprietary settlement model, IRGiT offers clearing and settlement of transactions in TGe24 futures on the POLPX Financial Instruments Market. This is the first step in the development of services on the financial market in commodities. In the next step, clearing will be offered for financial instruments based on gas.
As a service complementary to the clearing of financial instruments based on commodities, IRGiT offers the service of reporting trades on the financial market to a trade repository.
In June 2016, the Warsaw Commodity Clearing House (IRGiT) implemented a new clearing system, X-Stream Clearing from NASDAQ. The system replaced the legacy solution CONDICO Clearing. The new clearing system X-Stream Clearing provides a range of improvements including: clearing of multiple trading platforms; clearing of new types of instruments, such as “balance of” instruments; full flexibility of the selection of trade, clearing, and collateral currencies; improved management of non-cash collateral; netting of margins across groups of companies; facilitated management of the calculation of taxes including excise duties on natural gas. The implementation of IRGiT’s new system will ensure effecting processing of cross-border trade and the addition of new services. The clearing system X-Stream Clearing supports the clearing of multiple financial instruments, especially commodity-based instruments.