Utilities aren’t typical players in financial markets. Unlike other participants – which act primarily as financial traders or intermediaries – electricity utilities operate real assets for the production of electricity and need to fulfil supply mandates towards their customers. The operation of production assets requires planning far ahead of delivery to ensure stable and affordable electricity prices. In addition, utilities are involved in the financing of new production assets, requiring massive investments. To ensure predictability in their operations, utilities rely on commodity derivative markets, which allow them to offer tailored energy supply and financing solutions to actors across the electricity value chain.
Access to competitive and liquid commodity derivative markets allows utilities to optimise their core business activity, which is the delivery of secure, affordable, and decarbonised electricity. For this reason, they should not be treated like investment firms, which use these markets to maximise returns.
In its response to the European Commission’s consultation on the review of the Markets in Financial Instruments Directive (MiFID), the electricity industry urges regulators to preserve a stable and enabling regulatory framework to maintain trust in EU energy markets. Key asks include:
- Maintaining the Ancillary Activity Exemption (AAE), an essential mechanism allowing asset-backed utilities to optimise their portfolios without being burdened by banking-level regulation. Removing the AAE would divert capital from much-needed investments in the energy system.
- Enhancing regulatory coordination and data-sharing. Utilities already comply with well-established reporting frameworks under REMIT, EMIR, and MiFID/R – reporting both physical and financial transactions.
- Avoiding disruptive market interventions such as rigid position limits or prolonged trading halts. These risk undermining utilities’ ability to meet supply obligations. Such tools should be used only as last resorts.
- Protecting access to liquid forward markets, which becomes ever more crucial as public subsidies decline and price signals guide private investment.
In short, regulation should reflect the unique role of power utilities, which rely on financial markets to deliver secure, affordable, and decarbonised electricity.
