The Power Grid: From a Technical to a Finance Issue. Who Bears the Financial Risk?

ESMA (European Securities and Markets Authority) published in December 2014 a document about the regulation norms. In that document the ESMA proposed to skip the exemption option for energy companies for the guidelines of the financial instruments. From Jan. 3 2018 MiFID II (Markets in Financial Instruments II) expanded the catalogue of financial instruments to energy companies. MiFID II requires that – among others – energy companies have the obligations to include the product in position limits, tests for fulfilment of conditions for exclusion, and inclusion in the supervisory regime under the EMIR (European Market Infrastructure Regulation). The MiFID II is obligatory for all EU members.

Although there is a tendency for unbundling the several tasks in the energy sector, in some countries – like France – all tasks are concentrated in the hand of the state. At the other hand, in the Netherlands, Germany and the UK the tasks are divided among several parties. The financial relations between these parties are (partly) financial instruments.

This study is important for the electricity market. In this study we describe the financial relations between the several parties in the electricity market in the Netherlands. The focus will be on the question of who bears the financial risks on the future cash flows. We describe the working of the clearing and the margin requirements for a better understanding. This has never been done for any country. In the light of MiFID II this analysis can also be interesting for other EU countries.