* Two exchanges launched wind products to no avail
* Reinsurers quietly seal big contracts with utilities
* Next decade may see growth as green subsidies end
By Vera Eckert
ESSEN, Germany, Feb 8 In theory, a European
energy market for weather derivatives should thrive in a region
with seasonal changes, but bourses Nasdaq and EEX
have seen little demand for wind power contracts
launched in 2015, industry experts said.
"Most European utilities consider weather risk management as
strategically important," Jens Boening, head of weather
derivatives at EDF Trading in Britain, told a
conference this week during Germany's E-World trade fair.
"But the weather derivatives market is still in its
infancy," said Boening, whose company offers financially settled
weather contracts to the industry.
Wind contributes 12 percent of Germany's power generation,
creating risks for producers in calm and stormy periods because
of the unpredictability of speed patterns and hence likely
income and losses.
A German wind strength index offered by Nasdaq Commodities
since 2015 won a first as-yet-unidentified market maker
as of November 2016, but the value of its peak monthly volume
amounted to just several hundred thousand euros.
EEX, part of Deutsche Boerse, also launched a German wind
power future last year, but has not yet reported any trades.
"There is an assumption that the wholesale power market
already reflects the weather," said Konstantin Lenz, Germany
country manager for commodities at Nasdaq.
"We just have to be patient."
Peter Reitz, chief executive of EEX, said his bourse was not
flustered by slow uptake of its offering, being aware it had
introduced a niche product.
"We won't measure success by trading volumes in the first 24
months," he told Reuters. "We aim to change thinking around how
to integrate renewable power into the market."
Prior to the surge in renewables in Germany and wider
Europe, big utilities had started hedging weather risks around
gas, power and water supplies, given awareness of climate change
and the emergence of traded products meeting their demand.
Products such as wind, sunshine and rainfall emerged over
the past two decades, allowing risk hedges for customers as well
as profits for hedge funds, classic insurers and reinsurers.
This business is continuing - to the tune of hundreds of
millions of euros a year, the industry estimates.
But it is placed bilaterally between vendors and utilities,
whose energy trading floors often also offer secondary weather
products to smaller peers.
Reinsurers dominate the sell side because they cover
worldwide weather risk outside energy and can spread energy risk
across their portfolios, preferring to keep details of such
bilateral deals under wraps so as not to endanger their
This suits both parties well so far.
"The bourses cannot tailor their weather products as well as
the over-the-counter markets," said Ralph Hungerbuehler, senior
originator for weather and commodity risks at Munich RE. "Even
for us, it is sometimes hard to gauge customers' behaviour."
He was referring to a sector with a handful of players,
where reinsurer Munich RE and rival Swiss RE hold top
The weather market may become more active in the next
decade, when renewable producers emerge from subsidised payment
schemes, experts said.
"I know that disruption risks for newly built wind parks can
already be calculated very well," said Nasdaq's Lenz. "Word has
to go round among bankers and investors that it is advantageous
(to hedge weather risks)."
(Editing by Dale Hudson)