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 Friday 30 June 2017

EFET Master Agreements

The European Federation of Energy Traders (‘EFET’) was founded in 1999 and is an association of more than 100 energy traders in 27 European countries who are active in the wholesale market for electricity and gas. The reason for its creation was the relaxing of restrictions in the electricity and gas market within the European Union.

As well as encouraging regulatory measures that allow the free trade of electricity and gas within a balanced risk environment, EFET has also drafted standard legal documentation for energy trading.

EFET has published two main documents - the EFET General Agreements on Power (i.e. electricity) and on Gas which are standard form contracts for use by traders in order to increase liquidity in the wholesale market by providing standardised terms for the underlying transactions.

These standardised master agreements for the delivery and acceptance of electricity or natural gas, provide a similar structure to the master agreements published by the International Swaps and Derivatives Association Inc. (ISDA) for OTC derivatives.

The General Agreement is formed of 23 sections and an Election Sheet (similar to an ISDA Master Agreement Schedule) where any agreed additions and amendments to this General Agreement are made.

Any changes to the standard text should be made in the Election Sheet and not in the main body of the General Agreement.

The main advantages of using these documents are reduced negotiation time if few or no amendments are made and standardisation of documentation in this market. 

The EFET Agreement is a master netting agreement which can cover an unlimited number of trades defined as ‘Individual Contracts’.  The Individual Contracts contain the economic terms for each trade (for example the start and end dates, delivery schedules, contract capacity and quantity, price and the total cost). 

Typically EFET contracts are settled by physical delivery which is different to the normal settlement method for commodity transactions under an ISDA Master Agreement.

The General Agreement contains a set of standard terms and conditions on supply terms, payments, risks of delivery failure as well as close out netting. These terms apply to each underlying transaction.

In each case the General Agreements outlines the single agreement concept very early on the document (in Section 1.1) meaning that all transactions depend upon each other and a default under one transaction counts as defaults under all transactions covered by the Agreement

EFET has commissioned legal opinions with respect to the enforceability of the General Agreements on Power and Gas for many European countries and these are available to EFET members. The enforceability of the EFET’s standard terms and conditions in each country can vary depending on local laws and customs.  A list of countries and the cost of purchasing such a legal opinion is available on EFET’s website (  

The agreements and the related EFET library of supplemental documentation are currently the industry standards employed throughout Europe for the trading of physical power and gas.

In addition to the General Agreements, EFET has published a Credit Support Annex for use with the Agreement.  This is commonly used in the market and is designed to secure exposure to market price risk by the transfer of collateral.

There are also country specific and trading-Hub-specific Appendices developed by EFET to supplement the terms of the General Agreements, including:

  • The TTF Appendix and Guidelines for trading gas through the Dutch Title Transfer Facility;
  • The ZBT Appendix for trading gas in Belgium at Zeebrugge;
  • The NBP Appendix for trading gas on the UK NBP system;
  • The GTMA Appendix for the trading of power on the UK grid; and
  • The Emissions Allowance Appendices for trading Carbon and other Greenhouse Gas Emission Rights under the terms of one of the two EFET General Agreements.

Customarily, both buyers and sellers using the EFET Agreement develop their own “house” view on the terms contained in their Election Sheet, based on their position in the market.  One of the major issues to be considered in developing such a position and in negotiations with counterparties, is credit risk and what credit support the parties are willing to accept or require.  Parties without a credit rating or a parent company guarantee are customarily required to use commercial banks. 

Derivatives Documentation Limited would like to thank our guest blogger, Ernst van den Broek, Founder of Trading Lawyers (, for sharing this useful summary on the EFET Agreements.  Ernst has over 15 years’ experience in the financial industry and regularly negotiates and provides training on ISDA Master Agreements, CSAs, GMRAs, GMSLAs and EFETs.

Posted by Ernst van den Broek

Category: ISDA negotiation

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