Last week I visited with a client in Budapest (I love my job!). Budapest is a truly beautiful city with its own culture. Hungary seems like many Central and Eastern European countries, to be full of bright young people who seek work in high technology industries. It is also relatively cheap by comparison to western centers of industry and commerce.
As I talk to ETRM vendors across Europe, the topic of Central and Eastern Europe often comes up. As de-regulation has slowly but surely migrated eastwards in the power and gas markets so too has the need for ETRM software. Markets like Hungary are actually quite active and the HUPX exchange is now well known and liquid. Traders active in this part of the world will often trade all of the EU former Soviet block countries as well as into the non-EU Balkan states, Turkey and even the Ukraine.
Of course, trading in these markets can pose some interesting and often quite bizarre, issues in terms of local rules and culture not to mention VAT, customs and other related requirements. Indeed, some of the markets are not very liquid or transparent and some lack a reliable and liquid index or reference price. Turkey operates using its own form of contract in Turkish (as opposed to EFET or ISDA agreements for example) and traders need to beware the stamp duty that applies to such contracts! Potentially attractive trading areas for power and gas are often so because they are rather less transparent and more difficult to operate in and that is often the case in this region. Dealing with local banks and organizing credit collateral can also be rather challenging.
Historically, Europe as a whole has been a fragmented mess of markets evolving at different rates and often in different directions but the EU has set about establishing a single market and has actively encouraged liberalization. Of course, there are always some laggards who decide defense of a national energy company is a better policy than open markets but by and large in Western and Southern Europe, markets are coupled and increasingly it is easier to do business across that region. Central and Eastern Europe remains somewhat fragmented with some leaders and some definite laggards. Additionally, peripheral countries are not EU members and therefore not subject to EU guidance and legislation. Despite this, many are interested in being active participants in these markets.
Vendors see this part of Europe as virgin territory with lots of potential and they are essentially correct. However, they too must beware the variability in rules, fees, data standards and so on that they must cater for in their ETRM software. Additionally, each local market requires a scheduling and capacity solution as well.
Most European vendors originated in local markets as that market evolved and liberalized. For example, Brady PLC’s solutions are mainly Nordic and Northern European in origin, Trayport Contigo has been historically successful in the UK and Ireland, Energeya (now SunGard Energy) in Southern Europe, ATOS Worldgrid have had success in the Iberian region of Europe, OpenLink’s IRM has been successful in German-speaking markets, while many US-based vendors have historically targeted market tiers (OpenLink) and areas (Allegro, Triple Point etc.) somewhat effectively. In effect, the historical regional nature of European power markets has left us with a legacy of regional ETRM solutions too.
In fact, that situation also extends into Central and Eastern Europe where regional suppliers have historically thrived as well. Polish Transition Technologies has various POLPX-facing solutions, Slovak vendors IPESoft and MicroStep HDO have both done very well in the former Czechoslovakian and surrounding areas, IP Systems in Budapest has a number of solutions including an ETRM targeting Hungarian and nearby markets and the Moscow-based Constellation of Energy Solutions is the dominant provider in Russia. There may be others that as yet, we remain unaware of as well.
While Central and Eastern European power and gas markets are attractive propositions for ETRM vendors, the issues remain all too evident. Local and regional functional requirements, local and regional integration challenges, a lower price point and more cost pressures and established local competition with good knowledge of language, business culture and existing connections. Nonetheless, we expect to see greater interest and activity levels both in terms of seeking new ETRM solutions as well as on the part of the vendors seeking new business opportunities there. Either way, the CTRM Directory is a good place for prospective buyers to take a look for possible solutions and ComTech Advisory routinely delivers fast and effective long list generation projects for end users too.
