Energy 5 October, 2020 10:30 am   

Batory: The energy and gas market needs the right balance


According to Łukasz Batory, senior associate and legal advisor at Banasik, Woźniak and Co. law firm, while no exchange obligation and 100 percent exchange obligation are both bad solutions, liquidity could be achieved with an obligation between 10 and 30 percent. In his opinion, the right balance between security and competition has to be struck.

“The exchange obligation was introduced in response to the growing energy prices. The decision makers concluded that a 100 percent obligation will slow down the growth of energy prices. However, they did not achieve the desired result. The coronavirus made a big mess. The prices went down a little, but they will go up because of the cost of CO2 emissions and the set up of the generation sector in Poland, which is dominated by coal. It will take over a decade to change this state of affairs, despite the fact that actions are being taken to change the market in this regard,” the interlocutor said. Mr. Batory believes that the obligation is neither the remedy for increasing energy prices, nor has it any impact on the amount of imported energy.

“I can’t imagine why altering the trading volume of energy on the exchange would impact how much energy is imported to Poland. Completely removing the exchange obligation will not solve any problems either. To a degree the obgliation is necessary to ensure energy accessibility on the market. The usual regulatory tools of the Polish Power Exchange (TGE) will not suffice. Even the lowest possible obligation at a level of 10-20-30 percent generates enough trade on the exchange to shape the price,” the lawyer explained. “A 100 percent obligation is not an ideal solution as well, because paradoxically it drove many companies out of the market. The fact that the entire volume needs to be bought on the exchange means it needs to be secured on TGE in its entirety and in advance. However, many companies present on the exchange have delayed payment deadlines, and are able to buy only a part of the volume. They do not have the liquidity that would allow them to continue with the obligation at 100 percent,” he continued.

Mr. Batory was also asked about the analogies between a 100 percent exchange obligation on the energy exchange and the act on gas storage. “In theory it ensures security, but in reality it causes concentration on the market,” he admitted. “For the market to work and the volume to be big, the right balance between security and competition needs to be struck. It is also necessary to ensure the presence of many companies, which will guarantee competitive prices,” he added.