Response to ESMA Consultation on Discussion paper on the review of the clearing thresholds under EMIR

In responding to ESMA’s consultation on the review of clearing thresholds under EMIR, Eurelectric had the following key messages:

• In spite of the significant price increase in power, gas and CO2 allowance prices in 2021, we have not seen any defaults of major counterparties. Moreover, there has been no “domino effect” as experienced in the 2008 financial crisis, which resulted in the Pittsburgh agreement and, consequently, in the introduction of EMIR. This real “stress test” has proven that the utility industry manages risk appropriately and does not impose significant systemic risk on the financial system.

• The restriction of available volumes for OTC derivatives is limiting firms to engage in new evolving business to facilitate the energy transition. Investors in e.g. wind farms and solar power seek protection from price and volume risk independent from the physical delivery of the power production. This can be offered – by a counterparty of the utilities – using structured financial contracts, which for these counterparties are in scope of EMIR and, hence, contribute to the clearing threshold usage of the offering utility firms. Although, the particular products contain physical characteristics according to the power produced in reality and are therefore not suitable for any margining or clearing.

• EMIR is very restrictive in terms of thresholds and scope in comparison to other jurisdictions (we refer to EFET’s Benchmark Study of 4 October 2021 “Commodity derivative clearing under EMIR – A cross jurisdictional analysis“), putting European firms into a disadvantageous position compared to third-country competitors.

Therefore, we urge ESMA to review and increase the EMIR CCT significantly to a systemically relevant level, not only compensating the effect of increasing price levels.