What is a
Futures Market?Definition
Futures contracts are traded on a futures market. In such contracts, the contracting parties agree to postpone fulfillment to an agreed date in the future. Futures markets exist for a wide variety of contexts, from financial instruments to agricultural products and energy products.
The European energy futures market is part of the European Energy Exchange (EEX) in Leipzig and enables the trading of delivery contracts for a variety of products and commodities that are delivered at a future date. In the case of electricity, which is also traded at the EEX in Leipzig, the futures market offers producers and consumers the opportunity to plan their electricity deliveries long-term through futures contracts and to secure the price level. These futures contracts are clearly defined and obligate the contracting parties to ensure continuous offtake throughout the entire delivery period. This is also the central feature of the electricity futures market: unlike all other futures markets mentioned, there is no future settlement date defined here, but various settlement periods - making the electricity futures market more complex by one additional variable. Given sufficient liquidity, contracts with a duration of up to six years in advance can be concluded on this market. At the EEX, so-called electricity futures for 20 European markets are offered.
In German-speaking regions, "Power Purchase Agreement" (PPA) is commonly used as a term for long-term fixed-price electricity supply contracts. However, strictly speaking, a PPA is simply a contract between two parties for the delivery or offtake of electricity, which can also occur at variable prices, such as the spot price.