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How can settlement banks, bank guarantees, nominations and scheduling tests, and the order of activities delay a market entry?
By
Eszter Pontenagel
On January 30th 2024, Mitch Exon (ETRM Sales Manager - Energy One Europe) and Eszter Pontenagel (CEO of Time2Market) kicked off the first in a series of webinars by Energy One.
After the short presentation, Mitch Exon and David Sierra of Energy One, and Eszter Pontenagel and Paul Pontenagel of Time2Market, answered the audiences' questions regarding outsourcing of market entry and market operations.
“How to speed up your entry to new energy markets” part one of a series of webinars geared towards new entrants to the European power and gas markets. Whether you’re entering from another industry, a newly established energy trading company or trading desk, or an existing utility expanding into a neighboring country, this mini-series should speak to you.
Mitch Exon is the ETRM Sales Manager at Energy One. He’s worked in Fintech for about 20 years, initially focusing on fixed-income equity trading systems. He moved into the energy commodity space about eight years ago.
Eszter Pontenagel is the CEO of Time2Market. Her background is over a decade working in the wholesale power and gas industry, primarily focusing on entering new power and gas markets worldwide. She has worked at companies such as NEAS Energy, Centrica, and MFT. She has been fulfilling different roles, from business development to strategic business development in all areas related to wholesale power and gas markets.
There is a perfect storm of high volatility in energy prices caused by a combination of factors such as intermittent renewables, real-time trading, extreme weather events, geopolitical risk, increased integration between European hubs and, of course, the energy transition. All of this is attracting many new entrants to the European power and gas markets.
Indeed, we can see many new market entrants entering the energy industry. We see small startups, large international trading houses, and investment banks alike showing interest and entering the industry. It’s exciting times that we’re living today!
Everybody wants the same thing: They’d like to enter the markets faster. Today, let’s talk about how Time2Market and Energy One can make that possible.
At the forefront of the company is Eszter as CEO and Paul as Managing Director. Together, they operate a team of experts, focusing on opening wholesale power and gas markets across the globe. Time2Market functions as an external business development department and focuses on supporting companies of all sizes to outsource their market access and market continuity procedures so they can enter these markets in an efficient and compliant manner as fast as possible.
First and foremost, Time2Market focuses on power and gas market guidance. We help clients and leads who are in search of finding their game plan before entering the markets. We help them understand the mechanism, the regulations, the different areas related to the wholesale power and gas markets and then together create a plan.
Afterwards, we move on to the market access side, which is our bread and butter in the sense that we do all the implementation and operational part. After a participant is onboarded on their desired market, we begin the market continuity.
Market continuity focuses on the post market entry procedures. Entering a market, whether that be power or gas, does not end simply by having all the accesses, contracts, and collaterals in place. There are numerous regulations and legislations that you need to adhere to, and we are there to help our clients comply with these markets after their entry as well.
We define market access as the procedure to facilitate company setup for trading on the specific market. We work together with our clients to look at their background, we look at what setup they have today. Afterwords together we create the scope, where we consider their ambitions and plans for the future.
Once we have established the scope, we move on to the implementation phase, from the license to becoming active on the market.
The licensing part particularly could be a whole topic in itself, because of course a lot of countries require a wholesale power or gas trading license, which can already by itself be quite time-consuming, complex and cumbersome.
Once we have obtained the license. We move on to the BRP agreement, the TSO setup. Here we support our clients by coordinating their BRP agreements, submitting all the collateral, whether that be cash deposit or bank guarantee. We support, of course, if they don't have the back bank setup in place, to get that established for them. It's important here to consider the nomination and scheduling.
Once we have the BRP in place, we simultaneously start dialogue with the exchange to complete the exchange membership setup, or if the member is already active on the exchange, then we just add a new product on their existing membership. If they do not yet have access to the exchange, we need to go through a quite cumbersome KYC procedure, due diligence, all kinds of documentation submissions, and communication with the exchange and the team from the exchange.
Once these three main items are set up, the market the client can test their environment and then we basically have gotten access to the market.
Now comes the market continuity part, which focuses on the post entry requirements of the specific market. The regulatory reporting here is not the REMIT reporting. It is simply the regulatory reporting part where you, as a market player, when you're active in a specific market, need to submit regular reports to either the regulator or the TSO for you to be compliant on the market.
And lastly, there's user access management. There we help clients to get their traders or members set up as soon as possible.
Banks are heavily regulated and like to avoid risk. At the same time, they need to make profits as well for having you as a client.
If we look at Scandinavian markets today, we have experienced in many cases that the banks have difficulties onboarding new market players, specifically new market players who are registered or based outside the European Union zone or even the Scandinavian markets. Of course, there are exceptions, but generally, it's a very difficult area as of now.
Another area of bank challenges is Great Britain and Ireland. When entering the UK market, you must have a GP IBAN and then again, not all the banks are keen to support you on opening the GB account.
Other smaller, let's say, modern banks, have limited technical means or have a longer onboarding queue. Whether you're entering Ireland or the UK, it's good to familiarize yourself early about these requirements and to start having conversations with the banks as soon as possible.
We are sure many of you have already experienced that bank guarantees can create quite a long delay when entering the market. Many TSOs are very specific and strict about the wording of bank guarantees. On the other hand, the banks are also very strict in issuing a bank guarantee that is not really to their liking.
There's a lot of continuous communication between you, the bank, and the TSO to set up the bank guarantee in time. That's another area where you can either speed up or delay your project when entering the market.
We always take the nominations and scheduling test discussions as one of the first items. The most common question we get is: “Should we do it in-house, or should we use a service provider?” And for us the answer is always a service provider.
Service providers like Energy One are focusing on that one product and that only to give you the best platform for you to be able to communicate with TSOs in the most efficient way. You have to be aware that these nomination scheduling tests are not only the test. Maintaining your communication requires a lot of IT resources.
Besides that, once you become active on these markets, these TSOs can often upgrade their systems. So, not only do you need to keep track of these updates, but you need to make sure that you update the scheduling and messaging setup on a continuous basis.
We see a lot of markets where they say your company excerpt may not be older than 30 days, or three months, of the submission date. So, you need to be aware where you can save time as much as possible. You must know which document or area takes the longest, so you can start with that area to obtain market entry as soon as possible.
We know which documents take the longest, so we always start with those while we simultaneously do the rest of the setup so we can save as much time as possible.
Here we have the most important areas that are good to know and be aware of when you're entering a new market.
Of course, you have to identify all the relevant counterparties and what their roles are. What does the regulator do? What do they stand for? Who is the supervisory body on a specific market? And how stringent are the rules?
It's good to reach out to all these counterparties as early as you know which markets you will enter and ask all the relevant questions. Anything that you can come up with that is relevant for your specific setup, for your company and for your comfort, in order to be compliant on the market.
We often see that the bank guarantee can make or break a project so we can already begin with the proceedings for obtaining a bank guarantee as soon as possible.
Energy One can support you in the best possible way to send your nominations and scheduling to the TSO in the most efficient manner. It's a plug and play solution, so you're on the safe side, you can focus on what you do best: trading, creating your systems, your algorithm, and leave the nomination to who's best.
We cannot emphasize how important it is that you create trust, that you are transparent, and you are open to discussions with all the counterparties so they can help you in the best possible way in all kinds of markets.
Be in touch. Just because you are set up on the market does not mean that everything runs as smooth as possible. So just make sure that all your compliance is in place and your obligations are fulfilled.
We understand you may not have time to go through the entire 150 pages of the grid code or the BRP agreement. We also help our clients by discussing areas such as settlement imbalances, invoicing timelines, etc. that are very important for you to be aware of before you become active on a specific market. So we know that your areas of activities are covered and that you are aware of your obligations.
The REMIT reporting is something that the exchanges take care of automatically. While Time2Market does not deal with REMIT reporting, Energy One can assist here.
Currently we do not offer any customs reporting, but when we set up our clients on the interconnectors for the physical flow between, for example, UK and the mainland, we of course register our clients in such a way that they are able to facilitate their operations, be it customs reporting or carbon reporting. So we facilitate it, but we do not do the actual reporting current.
Yes. Currently, we have many projects running on the US market primarily on the power side. But of course, we follow our clients so it's a matter of discussing which market is of interest to you and we go there.
Lately we see a lot of interest in especially the virtual trading in the US so it could be a day-ahead to real-time or convergence bidding; It's quite a hot item lately.
Regarding the last question about shipping agents: No, that is not what we do. That is sometimes confusing when we talk about market access. People might think that we facilitate the actual access via our own BRP agreement or shipper setup, but that's not the case.
We facilitate registration and that's the part that we allow you to outsource. Time2Market is not an actual shipper or BRP.
It varies from market to market. Every market has different requirements and procedures. Let's say the fastest, could be as fast as two months. A market that would be much more complex, let's say for instance Poland where the licensing procedure is quite extensive, it can go up to 10 months as well.
It very much depends on whether we need to open a new legal entity as well. We work with all kinds of clients who are based across the world. We have some clients that do not have European legal entity. We also help with that type of setup. So, if we need to start with the fundamentals of setting up a legal entity, it can take longer than 10 months.
Energy One provide services, such as after-hours operations and trading on behalf of our clients. With regards to managing back-office invoicing, that's something we could potentially be looking at. That's not a service we currently provide at the moment.
We do specifically a lot of Eastern European market entries. Here, I think the most active markets would be Poland and Hungary. We have concluded a few registrations in the Balkans, but we currently do not see as much interest as we see in the central Eastern European markets.
Currently, we do a lot of registration for shippers on the gas side, but nothing is specifically tailored towards the LNG setup.
We do not have as many registrations towards Australia, South America or Asia. We see from our whole client pool that the interest lies in the European markets and the US markets. That's where the majority of all the work is done. We do see still a lot of entries from outside Europe into the European power markets.
Sort of segues into a webinar that we'll be doing in the next series, but Energy One provides services around nominations, matching, portfolio balancing and asset scheduling. Their teams can manage the standing of a client’s schedules on the reserved market, as well as manage the activation orders from the TSO. In a nutshell, I'd say we do provide services for physical assets.
For Time2Market, the majority of our clients are spec trading houses, which is very limited to physical assets. But if you want to have a more in-depth conversation about the specific asset in a specific country, you're welcome to reach out.
Energy One is not a market participant. So, they do not hold any position and cannot provide market access. They have a 24/7 operation team that can operate portfolios on behalf of their clients, and they can, in this context, trade on behalf of their customers in their name and for different purposes.
In terms of exceptional cases, we hear mostly about challenging or difficult markets. We can see that Poland is very difficult.
Obtaining a license in Poland is an extremely cumbersome, time-consuming process that can take many, many months and many iterations. Updated documents and even requests for very non-standard documents in specific cases are common.
When we look at the general experience to get into the North American markets, we believe this is not a challenge, but you need to be aware of your company set up. It is very important to set your company up in the right way, especially when you start looking at your financial reporting, your company structure, your obligations, etc.
Once your setup is in place, it is only about registering towards the individual ISOs. They all have their own requirements, but in that sense, it's not as complex as one might think.
When it comes to Australia or the Asian markets, the setup is entirely the same. The Asian markets are a bit more difficult and more culturally diverse, but not too complex. We simply don't do any registrations currently because we are following our clients and their requests, but these markets are not excluded.
We have experience and we have set many of our clients up in the German gas market. As a shipper for trading there or the cross-border flows via PRISMA.
Here you need to be able to do the communication with the TSO where Energy One can facilitate getting your set up. This is an aspect where we really see the synergy between Time2Market and Energy One.
Time2Market focuses both on the wholesale power and guest markets.
Africa is an interesting area to look at, but currently we do not support entries simply because we have had no requests, so we have no current activities on the market.
Energy One is a one-stop shop for best-in-class software and services. So not only do they provide best-in-class software, for example for algo trading, short-term trading, nominations, and next generation ETRM, but they also have services around dispatching, trading on behalf of their clients, 24/7 operations, which is a unique selling point for software vendor. And they also offer risk transfer services where they are able to transfer risk around extreme weather events, for example, through their company called CQ Energy.
The Dutch market is the market where we have the most users. So, we have good experience and are in a good relationship with TTF.
This was the first in a series of webinars that Energy One will be doing throughout the year, probably in the next 18 months. The next one will focus on outsourcing market operations: 24/7 market operations of dispatch, night shift trading out-of-hours, which is what Energy One can provide.
In addition to that, they have a whole series of sighting webinars around short-term trading and auction bidding. They will have some guest speakers around regulatory reporting. They have great content around battery bid optimization. They'll be talking about the next generation of ETRM, power purchase agreements and weather derivatives, among others.
Energy One is a one-stop shop, which provides market comms to TSO's as well as nomination and scheduling software and algo short-term trading and nomination software. To support all of that is their position keeping risk system, as well as their ability to support our clients with REMIT reporting.
Finally, they offer outsourced operations for a plethora of European gas and power markets. They have 3 control rooms based in Paris, Belgium, and Australia with over 30 experienced gas and power operators, working 24/7. Due to their spread across the globe, Energy One operates using a follow-the-sun principle, allowing their Australian team to execute European night shift.
Their teams can take on a range of tasks on your behalf, including nominations and matching, monitor acknowledgement and matching, as well as being the first point of contact to fix any mismatch with TSOs and counterparties.
Additionally, they provide portfolio balancing: They can close imbalances based on an agreed workflow with their clients. And they can send linear and block orders on your behalf as well as monitor auction status over the day, according to the operational procedure you have agreed upon.
Energy One is exhibiting at E-World. Book a timeslot with Energy One here. If you need some tickets to E-World, Energy One can also provide you with some free day tickets.
Time2Market is attending E-World as well. We still have a few time slots available for Tuesday and Wednesday. So, if you would like to meet us face to face, please follow this link to book a meeting with us.
If you would like to discuss your specific case, challenges, ambitions or any other thoughts, feel free to reach out to us via our contact form or by booking a meeting here.
We deliver. You excel.
Disclaimer: Time2Market ApS is not responsible for the completeness, accuracy, and actuality of the information provided. This article is intended for informational purposes only and should not be considered business or legal advice.
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