Exchange’s IT malfunction sends jitters through European spot power markets

One week ago, European spot power exchange EPEX Spot was hit with an issue any financial platform would want to avoid. Technical problems led to a series of server crashes, forcing the exchange to launch back-up auction procedures. This resulted in Belgian power prices spiking to over Eur2,000/MWh.

During EPEX Spot’s preliminary auction at mid-day London time on June 7, the Belgian day-ahead baseload power contract reached EUR2,233.39/MWh. The auction was then cancelled due to the technical issue.

As a result of the glitch, cross-border market coupling operations were impacted across the Central Western Europe (CWE) region as well as Great Britain, and EPEX Spot had to declare a partial decoupling as a back-up.

In the EU’s Internal Electricity Market, market coupling refers to the integration of two or more electricity markets from different areas thorough an implicit cross-border allocation mechanism. That means participants bid for energy only on their exchange, and the exchange allocates the available capacity, thus minimizing price differences between local markets.

The partial decoupling meant that local day-ahead auctions were held for Austria, Belgium, France, Germany/Luxembourg, Great Britain and the Netherlands, for delivery Saturday. Once the Belgian day-ahead auction was re-run locally, the contract settled at minus Eur133.56/MWh.

A market participant posted on LinkedIn: “If you were short Belgian power for tomorrow, probably a day at work you won't forget in a while.”

The knock-on effects were felt on the UK N2EX market, with prices for off-peak hours over Friday night and Saturday morning rising as high as GBP276.51/MWh. N2EX is a competitor of EPEX Spot, and owned by Nordpool which operates in Norway, Denmark, Sweden Estonia, Latvia, Lithuania, Germany and the UK.

While EPEX reran Friday’s day-ahead auction, N2EX stood by its market results.

Some traders were able to take advantage of the of the price differential while EPEX and N2EX were not internally linked.

"We sold our available peaker capacity into this overnight power price spike, and either bought the power back at a much lower price or remotely dispatched the assets through this period depending on strike," a second market participant posted on LinkedIn.

“Peakers” refers to peaking power plants, which generally run in times of high demand.

Following the disruption June 7, market participants spent several days on tenterhooks wondering if the glitch heralded longer-term problems. Partly due to a public holiday, it was June 12 before EPEX Spot reassured traders that an internal IT issue was at fault, and not the algorithm that underpins the operation of the multi-regional coupled market. That would have been a nightmare scenario for the exchange and traders alike.

EPEX said that it did not expect any similar incidents on these markets. The exchange is fully investigating the incident, reviewing its systems and communication procedures. Meanwhile, a steering committee of European day-ahead market operators has initiated an investigation to identify lessons learned.