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 Exchanges show more trade as suppliers buy and sell power closer to
when demand will appear, to meet their delivery obligations, because
electricity cannot be stored effectively. New players are also
attracted by lower capital requirements and risks.
"As the percentage of renewables generation increases, the need for
short-term adjustments will grow, reflecting the limited precision
of forecasts for wind and solar generation in comparison to
schedules of conventional thermal plants," said Bonn-based
independent energy consultant Thomas Niedrig.
"Over the last five years, (spot) volumes jumped by 25 percent,
making the spot sector a growth star in difficult times," UK
research company Prospex said in a study.
European power trading overall, still led by futures, was declining
due to oversupply and the exit of many banks since 2012, it said.
Renewables capacity has increased dramatically in Europe as
policymakers push for cleaner energy sources.
German government data shows renewables capacity almost quadrupled
from 2003 to 2014 and renewables now account for 26 percent of total
electricity generation.
Power market trading developed in the late 1990s, with a focus on
forward contracts, driven by the need of generators to hedge future
fuel price risks for their 24-hour output over months, quarters and
calendar years.
Coal and gas plant operators can no longer plan their output years
ahead, as they do not know how many hours they will end up operating
in a market they share with rival renewables.
Fuel price risks matter far less now than risks of getting forecasts
for the likely supply wrong. That shifts liquidity into the
short-term.
EXCHANGES
The energy exchange EPEX Spot in Paris traded 107.8 terawatt hours
on its day-ahead and intraday markets in Jan-March this year, 13
percent more than in the same period last year, its data shows.
Intraday trading - to adjust buy and sell positions within a day -
in its core German/Austria region in March accounted for 12 percent
of total spot trades there, already more than the average 10 percent
seen over the course of 2014.
Exchanges, competing with brokerages and trading houses for
business, have been particularly inventive in devising short-term
contracts partly because their digital platforms can be easily
adapted to offering new contracts for short periods, traders say.
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Voice brokerages trying to do the same might not easily earn enough
money for the time and effort spent on such products.
The market leader is the Nordic countries' Nord Pool Spot, followed
by EPEX Spot, Italy's GME, Spain's OMIE and N2EX in Britain,
according to Prospex.
EPEX last December introduced a German auction for 15 minute
intraday power, held at 3pm in the afternoon of the previous day as
a tool to concentrate liquidity.
A number of big trading houses already active in EPEX Spot's short
term market, among them Geneva's Vitol SA, Noble Clean Fuels Ltd.
and Total Gas & Power, signed up for it in 2015, it said.
But there is also money to be made by smaller operators.
"Whereas previously intraday trading was largely the preserve of
utilities...now it's definitely very much in vogue and seen as a
profitable activity, especially with the flexibility of not being
tied to assets," said Chris Panton, senior analyst at Energy
Fundamentals, a London based investment and advisory firm.
Intraday does not tie up much capital while operators wait for the
trades to play out within a short time horizon, which limits risks,
he said.
"There is more control over what is happening," he said.
At the same time, small daily profits could eventually add up for
operations with low desk costs.
(editing by William Hardy)
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