April 15, 2014 / 1:50 PM / 4 years ago

European power markets grow for 1st time since 2010 -Prospex

* Trading volumes grew by 1 pct in 2013 vs 2012

* Market still less than 80 pct of pre-2010 size

* Exit of banks seen as main reason for market to shrink

LONDON, April 15 (Reuters) - European wholesale power trading volumes grew last year for the first time in three years but were still less than 80 percent of their 2010 peak size, research company Prospex said.

Total power trading volumes on exchanges as well as in over-the-counter (OTC) bilateral trades in the major European markets rose by 1 percent to a total of 8,628 terawatt-hours (TWh) in 2013 from 2012 levels.

“This was the first increase since 2010. The small increase can be welcomed in an embattled market, but it regained very little of the ground lost to declines of 12 percent in 2012 and 11 percent in 2011,” Prospex said in a report to be published on Wednesday.

The report analysed market developments in Germany, the Nordic region, Britain, Italy, Spain, France and the Netherlands.

Prospex said the retreat of many big banks from European power markets, due to low price volatility and tighter market regulation, was the main reason for the decline in trading volumes.

“Volatility has not been very high. For hedgers, this reduces the perceived need to trade. For speculators, it means fewer opportunities to make big profits on trading bets,” Prospex said.

“Concern and uncertainty about EU trading regulations has been another problem,” it added.

Banks such as JPMorgan Chase & Co, Bank of America Merrill Lynch and Deutsche Bank have recently shut their European power and gas trading desks.

Global commodity merchants such as Vitol SA, Glencore Xstrata and Mercuria, which are not as affected by growing regulation, are looking to step into the vacuum left by financial heavyweights, but Prospex said their expansion was not enough to fill the gap.

GERMAN & NORDIC MARKETS LEAD

Of Europe’s power markets, Prospex said the German and Nordic regions were the most advanced in terms of volume as well as having the highest churn factor, which describes how often a contract is traded before delivery or expiration.

“In 2013 Germany’s churn factor was 7.2. It was followed by the Nordic region at 5.7. The UK and Italy came next with factors of 3.0 and 2.9, respectively, in 2013. Spain followed at 2.4 and the Dutch and French markets trailed far behind with factors of 1.6 and 0.6, respectively,” Prospex said.

Although OTC trading has traditionally had a much bigger market share than exchange trades, the report said that the OTC market was loosing ground as new regulation favours exchanges.

“The OTC share of total volumes in 2009 was no less than 75 percent ... The share has declined every year since then, and the 65 percent figure in 2013 was a new low,” Prospex said. (Reporting by Henning Gloystein; editing by Jane Baird)

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