* Czech-Slovak power market integration boosts liquidity
* Shared grid and language helped process
* Coupling key for potential regional market
By Michael Kahn and Kwok W. Wan
PRAGUE/LONDON, Sept 30 (Reuters) - The merger of the Czech
and Slovak electricity markets shows other central and eastern
European countries that integration can work and could spur more
to do the same.
The success so far of the Czech-Slovak electricity market
integration on Aug. 31 -- marked by increased liquidity -- shows
that combining markets can be done. []
Central and eastern Europe offers traders a potentially
lucrative place to trade power but fragmented national power
markets and a lack of liquidity stands in the way.
"It is a good step forward and shows what needs to be done
in the region," Kasper Walet, managing director at Dutch energy
trading and risk management consulting firm Maycroft, said.
"Market coupling will certainly have benefits but you also
need some liquid exchanges if you want the same market system we
have in northwestern Europe."
Jurgen Wahl, an executive board member of the Austrian
energy exchange EXAA -- one of Europe's main power exchanges --
said he was impressed by the speed of the integration compared
with other coupling schemes such as one aimed at integrating
Belgian, Luxembourg, Dutch, German and French power markets.
"It's remarkable because two eastern European countries, two
emerging markets, managed to do something within a couple of
months which some very advanced markets need a lot of effort and
long discussions to set up," Wahl said at a recent conference in
London.
Like the rest of Europe, the power exchange landscape in
central and eastern Europe is fragmented but European Union
officials envision a future with one exchange to help drive down
prices for consumers.
LANGUAGE
As a single nation until 1993, the Czech Republic and
Slovakia had several advantages, including a shared power grid
and a common understanding of languages, said Chris Dinsdale of
KPMG's Global Power and Utilities team.
"It's the only one on the table that's progressing and
putting liquidity on the table," he said. "And they have first
mover advantage, which they'll keep for the time being."
But some traders said all had not been smooth with the Czech
and Slovak move, citing a few instances of market splitting,
when the calculated flow of power is higher than the market
coupling capacity received.
And while the two grids were initially designed as one,
there were still technical and political hurdles the operators
needed to solve to combine their networks.
Other countries looking to combine their markets face
similar issues despite investments across the region of internal
and cross border lines needed for effective coupling, Michael
LaBelle of the Regional Centre for Energy Policy Research at the
Corvinus University of Budapest, said.
"The coupling of the Czech and Slovak markets is a great
example of how coupling the already interconnected national
electricity markets can increase market efficiencies," he said.
"CEPS (the Czech grid operator) has really been out there
for a number of years pushing for greater regional integration.
I think it shows persistence pays off."
David Kucera, chief executive of the Power Exchange Central
Europe (PXE), said coupling had attracted more traders and
boosted liquidity.
The PXE is making a big push to be the main hub for regional
power trading, and presently operates in the Czech, Slovak and
Hungarian markets.
"The liquidity is better, that's for sure," he said. "But
it's really too early to comment on whether it will lead to
market coupling between other countries."
Romania and Hungary have been trying to couple their power
markets, something that could provide Hungarian consumers with
cheaper Romanian electricity.
But concerns that a flood of cheap Romanian power denting
the profits of state-owned power company, MVM, may explain the
political resistance to market coupling, analysts said.
"My feeling is Romania has a hegemonistic interest in
setting up an exchange in Hungary, and that is what the
Hungarians do not like," said EXAA's Wahl.
"One of the other things is that the political situation is
always changing in the countries, and this delays projects."
For a factbox on central and eastern Europe power exchanges,
click here []
(Editing by Sue Thomas)
( kwok.wan@reuters.com; +44 207 542 2454))
