FIS Modern Banking Platform
Advance your bank with a modern core platform.
Three Trends in Intraday Power Trading in Europe
February 24, 2017
The rapid move to renewable generation continues to drive intraday power trading in European markets. As the markets have developed, several important trends have emerged, including the expansion of intraday markets in terms of commodities, instruments and locations, as well as participants. Power trading opportunities in Europe have moved significantly closer to the moment of generation, caused by what is essentially a shift from demand-driven to supply-driven markets.
Unpredictable, renewable generation will continue this direction, with three trends in particular standing out.
1. Intraday Markets Continue to Expand and Grow
Since 2014, various exchanges and markets (APX, Belpex, EPEX SPOT, Nord Pool Spot and OMIE) have been cooperating on a common cross-border, intraday solution as part of an ACER-led initiative. Germany initially introduced 15-minute intraday power products. EPEX SPOT and NordPool now offer similar products, while others, including PolPX and iSEM, are planning to follow. Meanwhile, PEGAS – which launched in 2013 to provide a common gas-trading platform, with access to spot and derivatives products for certain European market areas – is now also allowing continuous trading in natural gas spot contracts.
As the number of instruments and products has expanded, so too has the interest level from participants. Intraday trading in Europe is no longer the exclusive preserve of utilities; The potential profit opportunity now attracts traders and even heavy industrials with cogeneration capacity. Meanwhile, many small-scale generators, like solar and wind, are now directly marketing their capacity and see the volatility, ease of access and increasing liquidity of these markets as attractive.
2. Automated and Algorithmic Trading is on the Rise
Trading continuously intraday has many consequences and potential issues. The number of trades and generation facilities is significantly higher, while response times with which to manage them is shorter. Some level of automation is needed to ease trader bottlenecks. At the same time, position management must be timely and accurate, and market information must be delivered to a trader’s desktop promptly, from an increased number of sources.
Increasingly, traders are looking to automated trading approaches, such as algorithmic trading, to better react and profit on changes in the market. With an opportunity to analyze bids and orders in the market, as well as understand the marginal cost of assets, small algorithms can be written that identify opportunities and auto submit orders. Increasingly, the ability to make decisions based on discrete rules and defined strategies is viewed as viable – if not preferable – to decisions made by traders. In the end, this approach reduces labor costs and can potentially increase profits.
3. As Traditional ETRM Falls Short, the Market is on Hunt for New Tools
The rise of intraday trading presents many technical and operational challenges too. Positions change every 15 minutes, and balancing needs to be at the level of the 15-minute increment for intraday purposes. However, a summary is still required for forward trading. So where should scheduling reside? Does it require a stand-alone yet integrated component of both an intraday solution and the ETRM?
The traditional ETRM solutions are not designed to support the requirements for real-time trading, such as 15-minute increments, real-time positions, market data, automated trading and bi-directional communication with real-time markets. They also aren’t meant to do re-nominations to transport system operators more often. This leaves many traders to consider considering building their own internal solutions or to seek discrete solutions in the market.
Experience has shown that traditional ETRM solutions are neither designed nor architected to support intraday trading activities. Rather, a focused intraday system is usually required to interface with the ETRM.
If you’re looking to trade in the intraday power market, FIS, for instance, has developed a solution that meets the needs of participants active in intraday markets in Europe for balancing, trading and market analysis.