January 2, 2020

Trading & Asset Optimisation

Energy Trading – What are the market drivers?

The most important difference from other forms of trading is that electricity is produced and consumed instantly. At a national level, electricity cannot be stored, so demand and supply must constantly be balanced in real time. This requirement has led to a significantly different market design compared to other traded commodities.

Within the power markets, there is a wide range of interest from: small producers selling energy from own power plants, to major industrial companies looking for large and steady supplies of energy, to power distributors and domestic users. The challenge of energy traders, structurers and analysts is to balance these competing interests and secure the best value for each party. 

Energy prices are influenced by a variety of factors that affect the supply and demand equilibrium. On the demand side (referred to as a load), the main factors are weather, activity and general consumption. On the supply side (referred to as generation), fuel prices and availability, incentives for development and fixed costs are the main drivers of the price of energy. 

There’s a number of physical factors between supply and demand that affect the actual clearing price of electricity. Some of these factors relate to the transmission and distribution which ensures the safe and reliable transport of electricity from its generation to its consumption.

Jobs within Energy Trading

Energy Traders – Energy Traders monitor market conditions and buy or sell power depending on their position, market conditions and forecasts. An Energy Trader is at the front-end of the trading function and depending on the organisation, might trade power within intraday, balancing mechanism, Day Ahead, or further down the curve. 

 

Quantitative Analysis & Data Science – A quantitative analyst or “quant” (within Energy) is a specialist who applies mathematical and statistical methods to the energy markets. Creating trading libraries and analysis, the quant will support Energy Traders and Risk Management providing the tools to react in real-time decision making. 

 

Structurer / Originator – A Structurer or Originator is an external facing role that originates deal flow into the trading desks of the company. Engaging with various clients, a structurer will find ways to solve their energy problems through the various products and solutions that exist. Solutions could be anything from agreeing to trade and optimise an asset to structuring a Power Purchase Agreement (PPA), hedging a range of variables and more. 

 

Back office / Operations – Historically, Trading teams would be supported by an army of operational staff: IT, Operations, Credit Control, Compliance and Legal. As the industry has developed, growth in automation and modern IT has reduced the scale of this function. 

 

Risk Management – The scale and value of power traded is significant so governance and oversight are critical components of trading functions. A Risk Management team can expect to validate and review the models provided by quants as well as reviewing, with perfect hindsight, the performance of the Energy Traders. 

Within these functions exists a further range of niche skill-sets varying from Power Forecasting to Meteorology, legal, compliance and systems design.

Which are the growth areas in Energy Trading?

Power Purchase Agreements – In recent years the decline of secure subsidies has shifted the dynamics of investment in new projects away from government and closer to business. Historically, an investor could rely on a range of incentives to provide security for the return on their investment – a critical component to an investment decision when we consider that the expected life of a power generation asset can be anything from 15 to 30+ years. As the cost of producing clean energy has fallen dramatically, governments have pulled back their funding and been replaced, to an extent, by big business. A long-term offtake agreement with a FTSE100 or S&P500 firm is now viewed as a win-win; as project developers and investors can secure the long-term income they require to finance the asset and big business benefits from a 100% renewable energy source of power, greater control and influence over the design as well as long-term price security. What started off as a vanilla or ‘cookie cutter’ product is developing into a highly competitive marketplace for investors, developers, traders and users of renewable power. 

 

Automation within Power Trading – We are seeing continued investment into trading automation technology to include Machine Learning, Artificial Intelligence, Peer-to-Peer amongst others. Combined with the uptake of smart devices and IoT, we can expect the trading function of the near future to look very different to what we see now. 

 

Battery Energy Storage – Investments in long-duration energy storage facilities will shift the trading dynamics further and allow a much higher penetration of renewable energy onto the grid mirroring markets that currently feature a significant proportion of Hydropower (Nordics a key example).

 

Consultative Quantitative Traders – The traditional trading function is being disrupted by the emergence of trading professionals who understand market dynamics, trading methodology and risk as well as how to build the models and tools to analyse and dispatch power. These hybrid professionals combine technical, market and commercial knowledge and enable power producers and users to reduce cost and optimise value. As long as they don’t become too sought after (and subsequently expensive) for agile organisations, these could be the sought after profiles of the future. 

 

Example Archived Energy Trading Vacancies

Senior Quant (Quantitative Analyst) – Energy Trading

Senior quantitative analyst sought to join fast-growth Energy developer pioneering a portfolio of Battery Energy Storage, Gas Peaker and Renewable generation assets. Joining a growing trading desk you will enjoy significant autonomy pioneering a trading capability that could combine one of the UK’s largest battery portfolios with one of the UK’s largest operational renewable energy portfolios.

Senior Data Scientist – Future of Energy Trading

The Data Scientist will be a key contributor to the Energy Trading team that is responsible for optimizing the UK’s largest portfolio of battery energy storage assets. Combined with a growing portfolio of distributed energy resources and renewable energy generation, the successful data scientist will contribute to the design, development and maintenance of the algorithms and predictive models that will run, in real time an automated trading capability.

Head of Energy Trading / Power Trading – Energy Storage & Ancillary Services Pioneer

Head of trading sought for leading Energy Storage & Ancillary Services Developer in the UK. You will be responsible for overseeing all aspects of daily trading activities and developing and integrating new strategies/businesses into the group framework. You will also take ownership in the design, implementation, and testing of trading systems, defining the risk and reporting policies and processes of the trading business.