South-East Europe entered 2025 with a surface-level appearance of market maturity. Day-ahead and intraday trading volumes reached record levels across multiple exchanges, price coupling expanded, and forward products existed in most national markets. Yet beneath this visible progress, a structural weakness remained unresolved: the region still could not internalise its own electricity price risk. Instead, it continued to export volatility outward, primarily toward Hungary and further into core European futures markets.
The inability of SEE markets to hedge their own risk is not a function of insufficient demand for hedging. On the contrary, industrial buyers, utilities, and trading desks across the region exhibited strong and growing appetite for forward price certainty in 2025. Electricity exposure in SEE is large, concentrated, and increasingly volatile due to hydro dependency, thermal fleet ageing, and grid congestion. The problem lies not in demand, but in market architecture.
At the heart of the issue is open-interest concentration. In every SEE forward market, liquidity collapses rapidly outside a narrow set of instruments. Annual baseload contracts dominate trading, while quarterly products trade intermittently and monthly products remain shallow. This creates a forward curve that exists on paper but cannot be used dynamically. Participants can place a hedge, but they cannot actively manage it without incurring material slippage.
This structure contrasts sharply with mature markets, where open interest is distributed across multiple tenors, allowing portfolios to be adjusted continuously. In SEE, once an annual hedge is placed, it becomes effectively static. Rolling, reshaping, or partially unwinding positions introduces price impact risk that most participants prefer to avoid.
A second structural constraint is participant concentration. Forward liquidity in SEE is generated by a narrow group of dominant utilities and a small number of trading houses. Industrial end-users are present, but typically as price takers rather than liquidity providers. This reduces competitive depth and increases the probability that one large order can shift the market.
The third constraint is regulatory and clearing fragmentation. Margining rules, collateral requirements, and clearing access differ across exchanges, discouraging arbitrage liquidity that would otherwise smooth price differences and deepen books. In practice, the cost of maintaining multiple collateral pools across SEE exchanges outweighs the potential trading benefit for most market makers.
Finally, and most critically, SEE lacks effective long-term cross-border risk instruments. Physical congestion risk remains unhedgeable beyond short horizons. As a result, forward prices embed implicit congestion premia that fluctuate unpredictably. Without financial transmission rights or equivalent long-term tools, price convergence remains fragile, and forward hedges remain exposed to geographic risk.
By 2025, these structural features produced a clear outcome. SEE power markets could price electricity efficiently in the short term, but they could not warehouse risk over time. That function was instead delegated to HUPX and, ultimately, to EEX, where deeper pools of capital and broader participation absorbed volatility that SEE markets themselves could not.
The result is a paradox. SEE markets appear increasingly liquid, yet remain structurally dependent. Until open interest broadens across tenors, participant diversity increases, and cross-border risk instruments mature, SEE will continue to behave not as a self-contained market, but as a price-taking appendage of the European core.
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