New ways to profit
If you are a Head of Energy Trading, working at an established commodities trading business, it’s highly likely that your leadership has been considering a move into short-term power trading. It is really a case of working out ‘when’ as opposed to ‘if’.
As a consequence de-carbonisation and de-centralisation, the traditional vertically integrated energy organisation, with the majority of output in large-scale power plants at its control, is disappearing. Trading dynamics are changing with multiple new market entrants in the form of oil and gas majors, asset developers, commercial aggregators and independent suppliers. The demand for information transparency from asset owners is at a high.
The critical question you should ask yourself is, ‘how long can I watch the most volatile part of the market (i.e. intra-day) without getting involved?’
Up until 2008, energy was heavily traded by most of the major banks, with a focus on curve (long-term) trading. Gas was preferred, perceived as an easier market to enter and due to static spark-spreads (difference between the price of electricity and the cost of the gas to produce it at 49% efficiency). Few participated in curve energy. Traders offered one another great credit arrangements, meaning that the larger mark-to-markets (MtMs) associated with trading long-term energy didn’t cost your trading book.
However, the impact of the global credit crisis and eventually the Volker rule meant that these traders exited the markets and the cost of trading curve energy became prohibitive.
Now in 2021, we see the market has transformed. Gas generation is falling, coal generation is almost non-existent, Nuclear, wind, PV, batteries and small, short-run, gas engines are providing generation and flexibility. Gas supply is decreasing, combi boilers will be replaced by heat pumps, ICE (internal combustion engine) cars are being replaced by EVs (Electric Vehicles).
Hedging long-term assets is simply no longer needed nor cost-effective for a trader.
Why get into trading short-term power?
In the 2000’s, most traders expired their positions at least a week before delivery. Delivery of power was complex. You needed large physical assets to make money from volatility, most positions were traded internally within large vertically integrated utilities and the sheer effort of trading every period failed to produce sufficient opportunities to cover the costs.
2021 presents a highly favourable situation for traders:
- Highly volatile markets driven by renewables
- Credit remains cheap as positions are delivered and paid for on very short timescales
- Competition between exchanges keeps the trading fees low
- Independent asset operators are looking for trading services
- Utilities no longer hold a monopoly on information
In the past, entering short-term power trading required significant investment in systems, knowledge and infrastructure to manage real-time physical delivery.
The larger trading service providers are no longer the ones with the best systems, most are constrained by legacy systems designed for coal and gas power stations.
Market volatility means that these services fees are increasing; therefore the value of doing it yourself is also increasing.
Introducing Brady PowerDesk
At Brady Technologies, we have developed PowerDesk, a SaaS solution to help traders take advantage of lucrative opportunities in European short-term power markets. The cost of market entry with PowerDesk is lower than building all the components separately. You can set up a trading desk in weeks not years.
You no longer need a larger on-premise enterprise-wide ETRM system for this type of activity with the associated CAPEX costs.
Focusing initially on GB and Nordic markets we offer:
- Low CAPEX costs associated with a SaaS subscription model
- Market connectivity in one place
- Exchange connectivity within the one solution
- The ability to flex assets if you have them
- Advanced augmented trading screens
- Market insight alongside your position
- Advanced position management screens
- Algorithmic automation of your trading strategy
PowerDesk will help you take on market risk and create value. It will help you leverage your trading skills with algos and help upstream and downstream players operate in this newly de-carbonised market.
So, if you want to trade energy on the horizon where the market needs traders – enter the prompt power market with Brady.
Written by Chris Regan, Product Director, Energy Portfolio Brady Technologies
As an energy trader, Chris was present at two market openings before heading up EDF Energy’s Trading and Operations capabilities between 2009 and 2017. As Vice Chair of the Power Trading Committee and Chair of Energy UK’s Wholesale Markets subcommittee, Chris helped create the current Energy market we have today, making changes to the energy trading products, negotiating the mandatory market making rules and making changes to allow customer’s assets to be re-optimised closer to real-time.
In 2017 Chris delivered a distributed trading capability (Powershift) into EDF, allowing customers to access markets alongside EDF’s own fleet of power stations and batteries. EDF’s Powershift is now a leading player in the UK flexibility market, optimising batteries, engines and DSR on behalf of EDF’s customers and is part of the international group’s flexibility offerings.
At Brady, Chris is now leading on the delivery of a short-term power trading SaaS platform. Brady’s PowerDesk solution will allow energy traders to operate in this new decarbonised, intermittent and decentralised world of energy trading.
Chris has a background in Physics and complements this with an MBA from INSEAD.