Empowering asset developers to retain trading profits

Introduction

The energy market is de-carbonising and generation is decentralising. This means that the traditional vertically integrated energy company, with the majority of output in large-scale power plants at its control, is disappearing. Instead, asset owners are becoming more diverse.

As an independent asset operator, you now own a much higher proportion of electricity generation, yet you may still rely on one of the incumbent energy companies to trade the output of your assets, typically through a Power Purchase Agreement (PPA).

However, the best energy traders are not necessarily the most established in the market. The latter are often still using legacy trading systems and are stuck to trading their existing portfolios. The energy transition is creating new trading opportunities, which many traditional players are not fully exploiting.

If you are an asset operator of wind, PV, or more sophisticated asset types, you now have an alternative option. Brady Technologies’ PowerDesk solution empowers you to trade yourself and retain profits internally.

Background

To understand the options available, we should first consider how your PPA is priced by a trading service provider. This can be achieved by looking at the typical fee structure for a customer with a day-ahead indexed wind PPA.

What is a day-ahead indexed wind PPA?

Your trading services provider will probably offer you a contract based on the outturn of the day-ahead auction. In mainland Europe, these auctions work together, however in the GB, following Brexit, two separate auctions are in operation. All of your MWs are priced at the day-ahead hourly index price and the trader takes on the risk of output changing from day-ahead and prices moving when attempting to rebalance.

Thus, with this typical contract structure the fees you might face are:

Trading fee

When selling your output on the exchange there are set fees that will apply whether you or your service provider are trading. These are applied to the price that you are paid (sometimes with and sometimes without uplift), so little savings are available here.

Liquidity fee

When trading in larger volumes the trader will assume that the market will gradually move away from them, i.e. if they have to buy lots of power the sellers will see this and slightly increase their prices. This is no different from the way airlines,  large taxi firms or hotels work when there is sudden demand. However, a good trader will gradually purchase the power avoiding shocks to the market. Again, this cost associated with not trading well will be turned into a fee on your final achieved price.

Bid/offer spread fee

When trading in continuous markets, there are a series of orders to buy (bids) and a series of orders to sell (offers). In order to assess the cost of re-trading your output in the short-term markets, your trader will assume that they can only sell at the lower price (the price determined by the buyers), or assume that they can only buy at the higher price. This inability to beat the market is passed through to you in the form of fees.

Market movement fee

In addition to the liquidity fee, the trader will also assume that your assets output will be inversely correlated to average market price. This means when your wind output increases, they assume others’ wind output increases and the market price will reduce. Similarly when your wind output decreases, others do as well and market prices increase. There is the assumption that the market price will move before they re-trade your output – thus this lack of speed in execution is passed onto you as a fee as well.

Imbalance fee

When you don’t rebalance your portfolio to the best forecast you end up ‘out-of-balance’ and you get imbalance fees. In some markets this can be very penal but at times beneficial as well. Your trader will assess how much they fail to trade on your behalf and pass this through to you as an imbalance fee.

There are likely to be other fees and services that are available, but for the purpose of this article we will stick to the larger and energy price related fees.

How to scale your business in the future

From the fees that your PPAs attract you will see that most are based around the trader protecting themselves against their own below average performance. These might have historically appeared reasonable, but the dynamics have changed.

  • The larger trading service providers are no longer the ones with the best systems, most are stuck on legacy systems designed for coal and gas power stations.

  • The barrier to entering the trading market is much lower. With SaaS solutions like PowerDesk you can spin up a trading desk in weeks not years and don’t have to invest in on-premise, CAPEX intense solutions.

  • You don’t need a larger on-premise ETRM (full-scale trading system) anymore for this type of activity. You can subscribe to something much more cost-effective with Brady PowerDesk.

  • Market volatility means that fees for these services are increasing; therefore the value of doing it yourself is also increasing.

  • Out of hours algorithmic trading is a real option now, reducing the OPEX of trading desks by up to half.

So, once you exceed 100MW of Wind/PV or 200MW of batteries (or other flex assets such as gas peakers) it is worth considering a very simple question: 

Would I be able to save more in trading fees than it costs to run my own power trading function?

Before you allocate your next PPA, consider awarding the contract to yourself and use Brady Technologies’ PowerDesk to retain more of your profits internally.

The author

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.

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Empowering asset developers to retain trading profits

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