Pan-European management of electricity portfolios: Risks and opportunities of contract bundling

Due to the liberalization of energy markets in the European Union, today's European utilities not only focus on electricity supply, but also offer exchange-traded “structured products” or portfolio management for unbundling financial and physical risk positions. Many utilities are only able to provide these services in their domestic markets. In a globalized economy, the need for a centrally organized pan-European portfolio management has arisen, as it allows a simplified commodity sourcing in combination with an optimized risk management. In this paper, we examine the challenges to be overcome for establishing a European-wide bundling of electricity contracts. For this purpose, a case study based on the business perspective of RWE Supply & Trading in Central and Eastern Europe is carried out. In a first step, we analyze general requirements for a pan-European bundling of electricity contracts. Then, RWE's situation in Europe is examined, based on which we finally propose a concept to meet customer demands in Central and Eastern Europe.

Research highlights► Analysis of electricity market liberalization in Central and Eastern Europe. ► Identification of requirements and problems for pan-European bundling of contracts. ► Case study based on RWE Supply & Trading perspective in Central and Eastern Europe. ► Model development for pan-European unbundling of financial/physical risk positions.