Your business looks nothing like it used to 20 years ago, apart from a legacy ETRM system
If you lead a trading desk based at a long established utility (as I did for many years), I can guarantee that:
- Your portfolio now has more renewables generation than fossil despite having zero of the former only a decade ago
- You have at least one trader who has worked there since the beginning of the NETA market (27th March 2001)
- You have at least one spreadsheet that was originally set up around 20 years ago that is “business critical”
- Your ETRM is still your system of record for trading in the prompt, but is not the source of your position report
In the UK it was Centrica, EDF, SSE, Scottish Power, Eon, Npower. Whilst the names have changed and the portfolios have decarbonised, most are still linked to the legacy of a large, enterprise-wide ETRM system for their prompt trading and wondering what the credible alternative is?
The utility’s unique challenge in short-term power trading
You may have lost a significant amount of your market share in terms of assets and customer numbers, but continue to hold a significant proportion of the energy infrastructure.
You will still have:
- Conventional power stations whose output needs trading
- A Commercial and Industrial (C&I) business line, with some customers holding floating price exposure all the way down to day-ahead, and possibly into cash-out
- A residential business that is either half-hourly or more likely non-half-hourly settled
However, in addition to the above, you now have:
- High volumes of renewable generation either owned of as an off-taker through a power purchase agreement (PPA)
- Embedded flexible generation (batteries, gas peaks)
- Significant volumes of demand side response contracts (DSR)
- Flexible residential tariffs
- Electric Vehicle (EV) charging infrastructure
- Exposure to supplier of last resort requirements when the small supplier businesses fail!
Therefore, you will have a mix of the most modern challenges combined with the highest proportion of legacy contracts to fulfill.
How to succeed in trading short-term power
Transforming your existing trading desk into a short-term powerhouse is not impossible. The key steps to take are as follows:
- Don’t look at your ETRM for day-ahead and intraday trading
Your ETRM may be a great system of record for settlement, risk control and credit management but none of these activities happen within the short-term timescales
- Risk teams do not look at positions until well after delivery
- Position reports are not considered by a middle office function
- Deals aren’t settled or registered with your back office until they have long since expired
So, if your ETRM is a great system of record long after the events have expired, you don’t need to use it to trade from in the live environment.
- Ensure all forecasts and information feeds are automated
One of the most cited reasons for traders leaving trading desks at established is laborious processes and inadequate IT. Cutting and pasting information from one forecasting system to another as a result of disparate systems not interoperating is never included on the trader job description, yet in some firms it ends up being the majority of the role.
- Trade your Gamma relentlessly
You will have significantly more flexibility in your portfolio than before. Short-term power prices are volatile, with single cash-out regimes offering credible routes to monetisation. Your systems and processes will be geared to balancing your portfolio. The modern trader doesn’t balance anymore – he or she ‘optimises’.
- Assume everything has uncertainty
Conventional generation largely did what it said – but your new portfolio will have more intermittent generation than dispatchable generation. Your optimising decision making process requires knowing the uncertainty in your position as well as the likelihood of how significant imbalance might change the system direction.
- Real-time P&L is key
Whilst measuring P&L is 10 times harder than ever, it is essential in these challenging times. Your short-term trading activities need to track your net open position, the market prices and the opportunity to ensure you learn from every choice that is made.
- Algos are exciting but where do they fit?
You risk management teams openness may be hesitant to new technologies and ways, but your Managing Director requires evidence that you are keeping up with the smaller, more agile trading houses. You will need to use Algo trading but be able to clearly articulate the risks, results and appropriateness into your business.
Introducing Brady PowerDesk
At Brady Technologies, we have developed PowerDesk, a SaaS solution to help traders take advantage of lucrative opportunities in the European short-term power markets. The cost of market entry with PowerDesk is lower than building all the components separately. You can re-invent a trading desk in weeks not years.
Focusing initially on GB and Nordic regions, PowerDesk enables:
- 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 with our unique short-term view and gamma-stick visualisations
- Advanced augmented trading screens
- Existing market insight alongside your position
- Advances position management screens
- Algorithmic automation of your trading strategy with intuitive swarm screens to summarise activity
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 portfolios operate in this newly de-carbonised market.
Utilities like yourselves still have some of the best domain knowledge out there – set free your traders and let them trade.
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.