The EFET agreement is a compensation-master contract that can cover an unlimited number of trades defined as “individual contracts.” Each contract includes the economic conditions of each trade (for example. B start and end date, delivery plans, contract capacity and quantity, price and total cost). EfET not only promotes regulatory measures to allow the free flow of electricity and gas in a balanced risk environment, but has also developed standard legislation for energy trade. The European Federation of Energy Traders (EFET) was established in 1999 and brings together more than 100 energy distributors in 27 European countries active in the wholesale electricity and gas market. The reason for its creation was the easing of restrictions on the electricity and gas markets in the European Union. In any event, the general agreement describes the concept of the agreement very early on the document (see section 1.1), which means that all transactions depend on each other and a failure is considered the norm in all transactions covered by the agreement These standardized master agreements for the supply and acceptance of electricity or natural gas , offer a structure similar to that published by the Association of International Trading Contracts and Derivatives of Enterprise Inc. (ISDA) for OTC trading contracts. EFET has published two main documents: the EFET electricity (electricity) and gas agreements, which are standard contractual contracts for use by distributors, in order to increase liquidity in the wholesale market by setting standard conditions for underlying transactions. The agreements and the EFET library associated with it, with additional documentation, are currently the industrial standards applied throughout Europe to the trade in physical energy and gas. The main benefits of using these documents are a reduction in trading time when few or no changes are made and the standardization of documentation in this market. Derivatives Documentation Limited thanks our guest blogger Ernst van den Broek, founder of Trading Lawyers (www.tradinglawyers.com), for transmitting this useful synthesis of EFET agreements.
Ernst has more than 15 years of experience in the financial sector and regularly negotiates and offers training on ISDA master contracts, CSAs, GMRAs, GMSLAs and EFETs. Usually, buyers and sellers who use the EFET agreement develop their own “big picture” of the terms of their election paper based on their market position. One of the most important issues to consider in developing such a position and in negotiations with counterparties is the credit risk and credit support that the parties are willing to accept or demand. Parties who do not have a credit or guarantee of a parent company are generally required to use commercial banks.