Renewables Disrupt The Energy Trading Market

Increasing renewables on the grid are shortening the energy market with new challenges for energy traders.
Published: Thu 17 Mar 2016

It is common knowledge that increasing levels of renewables on the grid are challenging utilities. But less apparent is that they are also bringing challenges – and opportunities – to energy traders.

“The increase in renewables is making the market more physical and more short-term oriented,” Dr Max Scheidt, MD of the German consulting company ProCom told Engerati in an interview at the E-world 2016 Energy & Water trade fair. “The challenge is that solar and wind are intermittent and not dispatchable, and this is introducing uncertainty into the transmission system which is forcing traders to become more focussed on the intraday  and hourly markets. So we need to find new solutions and value propositions for customers.”

Short-term and intraday market requirements

Dr Scheidt explains that at the short end of the market, the trader needs to combine the dispatchable and renewable production, taking into account the ramp-up and ramp-down times of the resources, and needs to give short-term pricing indications.

“This  requires complex decisions to be made,” he says, pointing to the need for scheduling and economic optimization tools.

The latest products in the European market are 15-minute products in countries including Austria, Germany and Switzerland.

“The more renewables in the mix, the closer to the point of delivery one wants to trade and the higher the granularity needed in trading products. The introduction of 15-minute products is helping to reduce the amount of ancillary services the TSOs need to contract to keep the system stable and so the amount of liquidity moving into these fine granularity products is increasing.”

All of these issues, along with the continuous 24/7 market in continental Europe, pose significant challenges for traders and their IT systems.

Energy trading trends in Europe

Turning to trends in the energy trading market, Dr Scheidt says that in Germany the increasing trading volumes in the intraday market have seen volumes approximately doubling during the past 4 years, with a steep increase in the hourly and 15-minute products.

“We expect this trend to continue for a while,” he says, pointing out that the growth in renewables is at the same time being accompanied by a reduction of dispatchable generation with for example, the closure of nuclear generation.

“The intermittent generation is increasing in both relative and absolute terms and this uncertainty needs to be traded out.”

He also comments that optimization in the intraday market has been a game changer for companies operating dispatchable plants. “Up to now they could dispatch plants against the day ahead market in an auction but now they see huge opportunities in also doing continuous intraday trading with those plants. In this way the market is bringing together the physical and trading worlds and given the very short term decision cycles very well thought through tools are needed to support this process.”

This in turn is moving the industry closer to real-time scheduling, with the gate closure in Germany currently 30 minutes but expected to go to 15 minutes or even to 5 minutes in the future.

“Even after gate closure, traders continue to update schedules and often send out the final schedule just a few minutes before the delivery period is due to begin. One needs to use the dispatchable plants to smooth out the variability in the renewables or if for example a TSO makes a call for frequency control, then one needs to be able to recalculate the ranking lists. With this we are getting close to real-time optimization of the generation units.”