London, November 2010

Anette Nordskog is Vice-President of Corporate Communications and Project Development for Navita Systems, where she is responsible for developing and deploying Navita’s green offerings to a fast-growing global trading market amongst other responsibilities. Most recently, she held the position of Green Portfolio Manager for Fortum Markets where she was responsible for optimising the value of Fortum’s external production portfolio in Norway.

In 2008, Nordskog was elected to the board of RECS International, which works to lower trade barriers and promote a pan-European renewable electricity market. She is also a programme committee member for the 2011 RECS conference and a speaker in Copenhagen in 2009. I took some time to discuss with Anette recently the European Green Trading scene, the issues and the ETRM software landscape.

Can you describe the green trading markets in Europe for us? How active are they, what’s driving them, who participates, How liquid are they?

The green energy trading market in Europe is still an emerging market and it is currently still very segmented. The most liquid and widespread part is of course the EU-ETS. After going through a rough patch in phase 1, the market, as well as the policy makers, have learned a lot and phase 2 is proving to be more successful. Going into phase 3, starting in 2013, the market will be more mature and have improved functional market mechanisms (e.g. easier to value, more stable prices, better analysis: I heard one of the main carbon market analysis companies refer to the carbon price as the ‘teenager’ in the market last year. While you do see a strong correlation between factors in most energy-related commodities, the carbon price over time has shown very little such correlation and seemed to be more dependent on policy issues and current industry updates.)

But this is only one aspect of green power markets. There are also a wide range of national certificate schemes designed to enhance investments into renewable power. These are set up differently from country to country, and many, if not most, are struggling with both transparency and liquidity issues. Currently, Sweden and Norway are having talks regarding developing a joint scheme starting 2012 for green certificates and, if this happens, it will be the first European joint compliance scheme.

Speaking of compliance markets a sizable voluntary market has also emerged since 2001. The GoO is regulated in the RES directive and used for disclosure – not for target counting. That makes the market entirely voluntary. Volumes have been growing steadily even through the credit crunch. Up until now the market has been consistently long but it has now reached critical mass and is likely to achieve market balance some time at the end of this year. This market is bilaterally traded in a large number of European countries and is becoming more and more segmented based on customer demand and national branding local availability.

In addition to this there are tradable white certificates (for energy efficiency) in some countries, and also some yellow certificates (for transportation). Market participants are all member states and countries with bilateral agreements for compliance markets. As for national schemes, the most active seem to be UK, Italy, Poland, , Belgium, France and Sweden (with the potential of joining in with Norway).

The voluntary markets participants are energy suppliers wanting to brand or differentiate their products, industry participants and national governments. Participation seems to be largely driven by customer demand, obligation and profit.

How do you see the future of these markets? What’s needed to help them grow etc.?

Two key factors: regulatory affairs and market liquidity! Ideally I would like to see 3 joint European schemes, one for lowering emissions, one for energy efficiency and, one to increase the share of renewable power generation. That would support common targets, be understandable to all, and create better market liquidity. Given our regulatory set-up however, that is unlikely to happen any time soon.

Still, I think the key to successful development of the green trading markets is in regulatory affairs. Today we are facing a jungle of green trading instruments, support and taxation schemes. This is leading to lower liquidity and less focus.
Climate change as a policy issue has changed from being very left wing in the 80’s to being very much main stream today. Green trading markets will keep growing and expanding over the years to come.

I think the ETS is making good progress and phase 3 will move away from national allocation altogether and do everything via auction. New industries are being introduced and there are talks of increasing the reduction target from 20 to 30%.

As for the various national schemes and the voluntary markets this has to be a cause and effect issue. All free markets are based on supply and demand. I think the demand side of the market is anxious to see something come out of the different schemes and hear some success stories. The good thing about market based support schemes is that only those that deliver tend to survive over time.

As an ex end user of trading solutions in the green area, how do you currently see the broad capabilities of ETRM software in terms of supporting green trading activity?

ETRM software today has gradually been adopted to the green trading area and all tier 1 solutions have some sort of capabilities in this area. However, there is still a big gap in terms of managing the full scope of green trading. Particularly the “physical” part is very open, which is primarily due to lack of possibilities to integrate with central registries.

But, there is definite room for improvement. The market right now is suffering from too little information, too little transparency and at best varied liquidity. Some of the green trading products are far from standardized, and market intelligence, risk and pricing are areas that are difficult to handle.

And how do you see POMAX as a platform in this area? What does POMAX currently support in terms of the requirements?

Pomax is well positioned among the top tier vendors, with good coverage for both up-stream and down-stream processing related to certificates, carbon and other green products. However, the golden child is to provide full-cycle “physical” trading for emissions and certificates, which is still far from standardised, and in most cases not even possible to fulfill.

How do you see POMAX and Navita developing over the next 12-months as a green trading solution platform and provider?

Navita is currently involved in a R&D project called Energy Trading and Environment 2020. The outcome for the project will be used as a basis in our development of a” green version” of Pomax addressing specific issues in green trading. We are in the project with market players from production companies, trading divisions and observers from the regulator. As green trading is growing at the rate we are seeing right now there will be an increased need for suitable trading solutions to handle this complex mix of financial & physical, compliance & voluntary OTC & bilateral trading environment.

Navita sees this as a opportunity in the market, one that we are excited to be working together with some of our customers and partners to develop.

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Anette Nordskog is Vice-President of Corporate Communications and Project Development for Navita Systems, a technology provider for commodity trading. Recently awarded this position for her strategic industry insight and vast industry network, she is responsible for developing and deploying Navita’s green offers to a fast-growing global trading market, managing its market communications and heading its customer relations.

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