EPEX: data failure, decoupling, disaster?
Due to a faulty data package, the European electricity exchange EPEX in Paris decoupled the European electricity market on June 7, 2019. This caused a great deal of excitement on the markets. Johannes Päffgen, Head of Energy Trading at Next Kraftwerke, explains the causes and consequences in an interview.
Christian Sperling: Johannes - What happened? Why was there so much trouble at EPEX on the Friday before the Pentecost holidays?
Johannes Päffgen: Well - in the end it's a computer error... but we should go into that later. At about 11:40 this Friday we noticed that something was wrong at EPEX. We couldn't place any more bids for the day-ahead electricity auction on Saturday.
Christian: As the name suggests: In day-ahead trading you place your bids for the next electricity trading day?
Johannes: Exactly. All market participants in Europe who participate in day-ahead trading on EPEX must submit their bids for the following day by 12 pm of each day. We and all other market participants send data packages with our bids for the following day.
Christian: And this is where it all began?
Johannes: Looks like it. As EPEX has now announced, an unknown market participant has apparently transmitted a "corrupt" data package to EPEX - whatever that means exactly. We send complex bid packages to EPEX, too: Traders are always anxious to make full use of the leeway available to them. EPEX did not mention a hacker attack or malware, but the data package brought the trading server at EPEX to its knees and led to a server restart.
Christian: Aren't the EPEX systems redundant? Even Next Kraftwerke has to provide fallback solutions and backups for all our processes...
Johannes: Sure. EPEX removed the corrupt bid with the restart - but the bid was transmitted again - despite consultation. This probably not only completely disrupted the main computer, but also the backup servers of the redundancy system.
In other words: it was clear from around noon that "business as usual" was definitely over. All bids that had been submitted up to this point in time were dubious at the latest from this point.
Christian: Are emergency measures planned for such a case?
Johannes: In such a case, the regulations of the European market coupling system provide for decoupling of the individual market areas: From this point on, auctions for the following day will no longer be held within the European electricity markets, but in each country individually.
Christian: What are the consequences?
Johannes: First of all, it causes a lot of excitement: The elimination of market coupling has similar effects to closed border crossings for freight transport: differences between production and consumption can no longer be balanced out via the border couplings. The prices start to diverge - the initial aim of market coupling is to achieve price convergence by making sensible use of cross-border capacities.
Christian: Has this led to the large price fluctuations in Belgium? High negative prices of around minus 134 per megawatt hour occurred there on the affected day...
Johannes: Basically yes, but the decoupling is only one reason for this negative price increase. The other and more important reason is the cancellation of the erroneous prices by EPEX after it had established that the figures obviously could not be correct.
Belgium suddenly had an electricity price of plus € 2233.39 per MWh in the first, erroneous round - on a sunny and very windy day. Something could not be right. After the cancellation and reopening of the bidding phase until 2:35 p.m., the price was around minus 134 euros per megawatt hour.
Christian: So the weather at Whitsun contributed to the negative price development?
Johannes: Not only the sunny and windy weather - also Whitsun itself. We had a very good PV day, an enormously good wind day and a low consumption throughout Europe due to the holidays. In Belgium, the wind forecast was even higher than ever before.
Specialized publications in Germany therefore regarded the weather situation in particular as the reason for the negative price development in Belgium - this is not wrong, but ignores the extraordinary events on Friday before the holidays. It is also remarkable that we were technically already in the intraday market with the delayed, renewed bidding until 2.35 p.m. - this is unusual in every respect.
Christian: Can you explain that in more detail?
Johannes: The publication of the first, massively too high prices has definitely influenced the market in Belgium and elsewhere. In the first auction the prices for Belgium were plus € 2233.39 - the operators thought "Wow, we make infinite money".
A comprehensible reaction with such prices is, of course, to step on the accelerator: "Can't we get another megawatt hour into the market somewhere after all?“ Then the cancellation and everything turns around - the operators had to pay extremely high prices, there was far too much electricity in the market. From cheering sky-high to saddened to death - that day everything was on offer.
Christian: Is this a direct consequence of market decoupling?
Johannes: In any case. The aim of the market coupling is to harmonize prices within the entire coupling zone, i.e. to create an even distribution - naturally taking into account the limited capacity of the cross-border coupling points. EPEX's Euphemia algorithm takes all of this into account when determining the price.
If, however, the coupling is omitted, more electricity remains in one country while it is missing in another, the compensation is no longer given. The interruption has therefore definitely led to welfare losses for all concerned.
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Christian: Did the events have direct consequences for us?
Johannes: It quickly became clear that this was a special situation. We evaluated our options and assessed the risks. We weren't directly nervous - but it was very unusual, we haven't had experienced such problems at EPEX either.
Christian: But we remained capable of action at all times?
Johannes: We acted to the best of our ability given the chaos and the lack of information at EPEX’s side. The conditions were far from transparent, but all with all our traders dealt well with the situation. These events were also an opportunity to learn: we are now even better prepared to deal with such algorithm failures in the future.
Beyond any discussion about renewable and fossil energy sources, the electricity market offers both positive and negative prices. We as market players have to react to this and we have done so - even if the conditions on early Friday afternoon were of course anything but transparent.
Christian: Will the events of June 7 have any consequences for EPEX?
Johannes: That is to be assumed, after all many market participants lost money and the situation was anything but pleasant. The question why all security mechanisms and redundancies have failed is a central one and must be answered. It will certainly remain interesting to keep an eye on these developments.
Christian: That's exactly what we do. Thank you for the interview!
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Christian Sperling
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