German Intraday Cap/Floor Futures

 “The Energiewende is not only transforming the energy system but also the way electricity is traded and risk is hedged.”

Dr. Maximilian Rinck, Business Development


Challenge

More and more renewable power is being fed into the German electricity system:

  • Volatile electricity generation causes increased demand for flexibility on short-term power markets – most often accompanied by peak prices.
  • Renewables have low marginal costs causing lower market prices.
  • Low day-ahead prices drive conventional power plants out of the market.
  • This requires suitable hedging instruments for both renewables and conventional power plant operators.

Solution

The German Intraday Cap/Floor Future are the first of EEX’s Energiewende products. They allow trading participants to trade positive and negative price spikes on the German intraday market up to four weeks in advance. The underlying is a newly developed price index (ID3-Price) for the intraday market that captures the scarcity/surplus price signal emerging in the last few hours before delivery.

EEX's Cap and Floor Futures are cash-settled derivative contracts with which EEX establishes explicit price references for flexibility on the German Power market.

Since autumn 2016, the price level above which the Cap Future covers exposure has been set at 40 €/MWh. This threshold (“Cap”) indicates the price above which the buyer of a Cap Future receives a payment from the seller for an hourly product traded on the German intraday market of EPEX SPOT. The payment is the difference between the market price, measured by the ID3-Price, and the value of the cap. The ID3-Price is calculated on a daily basis for all delivery hours on the German intraday market and published by EPEX SPOT.

In contrast to the German Intraday Cap Future, the new German Intraday Floor Future allows market participants to actively manage intraday market price risk in the low-price segment and, in particular, negative prices. The threshold below which the Floor Future covers price risk is set at 10 €/MWh.

Defining suitable Caps and Floors

In specifying the payment threshold of € 40 per MWh, EEX has analysed the historical day-ahead prices from 2014. The adjusted threshold of € 40 per MWh is based on the 85% quantile of the ID3-Prices index from 2015. Similarly, the Floor of 10 €/MWh corresponds to the 5% quantile of the ID3-Prices in the same period.

With the chosen thresholds, it is ensured that the German Intraday Cap and Floor Futures only capture hours with high  or low prices on the intraday market, respectively, while at the same time guaranteeing a non-zero payout at settlement as often as possible.

Advantages of Trading German Intraday Cap/Floor Futures at EEX

  • First standardised financial futures to hedge against positive or negative price spikes on the intraday market resulting from the growing share of renewables
  • Trading participants on the EEX derivatives market can hedge against positive/negative price spikes that may occur on the German intraday market.
  • Futures product based on an intraday index that refers to only three hours of trading before delivery – ID3-Price
  • A broad and diversified network of trading participants
  • One-stop-shop for trading in various market areas as well as products and services along the value chain
  • Exchange trading and trade registration services on a regulated and transparent market
  • Elimination of Counterparty Risk through clearing at ECC
  • Market access via various front-ends and major ISV solutions

At a Glance

Trading hours

Maturities

Delivery rate

Tick size

Fulfilment

Exchange trading
8:00 am to 6:00 pm (CET)

Trade Registration
8:00 am to 6:00 pm (CET)

Current week and next 4 weeks

1 MW

EUR 0.001 per MWh

Cash Settlement

Contract Specification

Type

Cash-settled future with daily mark-to-market

Market Area

Germany

Underlying

EPEX SPOT Intraday index (ID3-Price)

Maturities

Week contracts (current week + 4 weeks ahead tradable)

Cap/Floor

€ 40 per MWh (Cap) and € 10 per MWh (Floor)

Contract Size

168 MWh, similar to Phelix Base Week Futures

Expiry

Monday after delivery week, similar to Phelix Week Future

Fees

Transaction Fees for exchange trades and Trade Registration: € 0.002 per MWh, Clearing Fees: € 0.001 per MWh

Fee holiday until September 2017