94Received 18.10.2023. Revised 28.12.2023. Accepted 29.12.2023.
Abstract. The paper offers a systematized and updated view of exchange-traded energy products. The increase in natural gas and electricity trade volumes at commodity exchanges has dramatically changed the wholesale market structure in Europe. Nowadays commodity exchanges have played an essential role in energy trading. The complexity of exchange technologies and the reasons for their demand are often hidden under everyday exchange routine. Academic analysis of exchange activity has traditionally been feebly developed, because, firstly, classical economics assumes that finding of equilibrium between supply and demand is an instantaneous and cost-free process. Markets were mainly described as simple market exchanges where faceless buyers and sellers meet for an instant to exchange standardized goods at equilibrium prices. Secondly, energy exchanges are relatively new phenomenon. The justification of exchange trading became possible as a result of new institutional economics (NIE) and transaction cost theory (TCT) findings. Under conditions of positive transaction costs, incomplete foresight and bounded rationality – the conditions of the New Institutional Economics (NIE) – the institutional framework not only of firms but also of markets matters. Also, within this institutional framework the concept of “governance structure” was introduced. A high-performance system shall align transactions with governance structures in relation to their adaptive needs. Governance structures are properly regarded as part of the optimization problem. A shift from one structure to another may permit a simultaneous reduction in both the expense of writing a complex contract and the expense of executing it effectively in an adaptive, sequential way. The founders of NIE and TCT, having been investigating the stock and commodity exchanges, approached them as a measure of transaction costs for other-the-counter trades. However, they did not include exchange trading into classification of governance structures. As far as is known, it has not been described in this way in terms of NIE and TCT to date. Natural gas and electricity markets is a good examples of network industries, which are an appropriate case of institutional flexibility regarding the alignment between transactions and governance structures. “Liberalised” network industries needed and still need an “intense” design and re-design to be able to host any kind of markets and to interact with. Organized markets, energy exchanges have developed a required bridge between leaving long-term contracts and price promulgation. The hypothesis of energy exchange classification as a special type of governance structure, in the meaning of NIE and TCT, for network industries is discussed in this article.
Keywords: natural gas and electricity markets, commodity exchange trading, market design, transaction cost economics, governance structures, regulation
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