Accelerate the World's Transition to Sustainable Energy - to fight Anthropogenic Climate Change, page-27615

*** It is the very development of renewable which is destabilising the grid!

JANUARY 19, 2024

By Paul Homewood

A new breed of traders is upending Europe’s energy markets. As governments spend billions on energy subsidies, there’s a real danger of privatizing the gains and socializing the losses

Before dawn on a recent autumn day, fog set in over large swaths of Eastern Europe. In any other financial market, the weather wouldn’t have mattered much. Perhaps a few delayed flights, maybe some traffic jams, most of little consequence. But in Europe’s electricity bazaar, bad weather equals money.

More than 1,000 kilometres away from the fog, a small group of largely anonymous trading firms based in Denmark was ready to pounce. As soon as the infrared picture from a Meteosat weather satellite arrived at their headquarters, computers automatically dissected it, feeding the data into complex trading algorithms.

With minimal human intervention, the machines bought millions of euros worth of electricity contracts. Their bet? Short-term power prices in Hungary would climb just after sunrise as the fog meant that solar electricity generation would be much lower than expected. It happened as they predicted. For a few minutes, until the fog lifted, electricity prices spiked, and the computers made money.

This scene — recounted to me by the those who oversaw the computers that morning — is emblematic of a new breed of traders who are upending Europe’s energy markets largely out of sight. They’re mixing computer wizardry and meteorological acumen with the upheaval of the green energy transition and the impact of Russia’s invasion of Ukraine. And they’re making bank.

“It’s ridiculous the amount of money they are making,” says Mogens P. Sorensen, a former power trader turned consultant. “There are billions being made trading electricity in Europe.”

Where state-owned utilities once dominated, today high-flying startups full of terribly smart PhDs and young engineers sporting hoodies are running things. Call it the “Silicon Valley” of European energy trading. Like its namesake in California, computers — automated trading desks, in industry parlance — rule. But in this case, the headquarters are two picturesque towns in northern rural Denmark, Aarhus and Aalborg, more than three hours by train from Copenhagen.

Only five years ago, the industry was small, with the top firms making combined net income of about $100 million per year, at best. Today, it’s a juggernaut — the same companies produced about $5 billion in combined profits in 2022, according to a Bloomberg Opinion review of their annual accounts.

Despite the riches, the traders aren’t household names. Outside the industry, few, if any, have heard much about firms like Danske Commodities A/S, Norlys Energy Trading A/S, MFT Energy A/S, Centrica Energy Trading A/S, InCommodities A/S and Nitor Energy A/S. Most of them are privately owned, controlled by a handful of their senior executives, who are worth, dozens, and in some cases, hundreds of millions of dollars. And yet, for Europeans, these are the companies helping to keep the lights on. They’re the ones smoothing out supply and demand on the grid by responding to oscillations in the weather, buying and selling power in advance, with consumers often paying the price.

This short-term electricity trading is a key part of Europe’s push toward renewable energy and fight against the climate crisis. But with governments spending billions on energy subsidies, essentially propping up demand and traders’ business, there’s a real danger of privatizing the gains and socializing the losses — though the industry denies this.

Despite their bewildering growth, the independent electricity trading firms have received very relatively attention from policymakers. Perhaps many saw them as a Danish issue, rather than a truly regional concern. But everyone in Europe should be attentive. The key will be to ensure the industry helps the development of renewable energy and the stabilizing of energy prices for families and businesses. Making a profit from trading is legitimate, but earnings mustn’t come at the expense of a functioning grid.

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When you create an artificial shortage of something, speculators make a profit!

It happened with rationing in the war, and it’s now happening in energy markets. Quite why Bloomberg are surprised is a mystery.

It is inevitable that over reliance on renewables will lead to the sort of shortages of power, which this new breed of traders is making millions out of. Worse still, when there is surplus power and prices fall, consumers still don’t benefit because producers continue to rake in subsidies.

Bloomberg’s final paragraph is laughable – “The key will be to ensure the industry helps the development of renewable energy and the stabilizing of energy prices for families and businesses”.

It is the very development of renewable which is destabilising the grid!