You switched the lights on. Traders made billions of dollars
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 kilometers 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.
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!
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NOT A LOT OF PEOPLE KNOW THAT 
Bloomberg wanting more renewables! No surprise there.
After reading the first few lines, I gave up in RAGE !!! yes! I know that such things are possible: like Cookies. SMART Meters too … I’m with E.on unfortunately. Wholesale Electricity ex generation @ 3p/kWhr, retail it @ under or around 30p. But you still have to pau for the Infrastructure – over 50p per DAY. Now, Eon wants me to have smart meter installed – so’s THEY can watch my every movement of power consumption. What will they gain? Just a load of complete Bullshit data …. Why? Well this part of our business has a house installed alongside the old part of the steading / workshop ( spread over a large area and local infrastructure anomalies of another kind. SO, I KNOW exactly what we use each week throughout the year – doesn’t vary much, BUT the workshop is something else. For Example this now: House as ” Ebac” Heat pump ( drier ) running since there is so much wet clothing to dry out, Workshop has Battery chargers running, Electric Light – several large LED still eats juice, and machine tools and heaters ( Induction) which have to be used as required when things go wrong ( Break/ bend / seize / freeze, etc). So what useless Info are they going to gain from that ? – and for the future, I’ll be getting cut off?
DON’T these stupid Know-all Germans and their useful idiots in the UK realise that outside Cities, there are real people living a real life doing real work and have real expenses and real commitments needing to get a real JOB DONE NOW. and all the city CITY can do is syphon off (for sake of a better word this now ) profits. ..
Failure to consider markets, or in some cases how markets would behave if they weren’t suppressed (e.g. wind in Scotland has a low locational value, but Scottish wind is protected from that reality) is imposing untold billions in costs. Traders are only skimming the surface of that. But the surface is large.
In the UK balancing mechanism costs reflect the reality that even a day ahead renewables are insufficiently predictable to ensure a close balance between supply and demand, with huge variations in prices from settlement period to settlement period.
Government double speak is clearly evident in this case. Here is a copy of the conclusion to an article regarding the Net Zero con.
Evidently, there is a massive disconnect between the rhetoric about interconnectors and the reality. Sadly, it is becoming clear that in many cases, when it comes to pronouncements involving Net Zero, the opposite of what the Government tells us is true. They are not cleaner – we tend to buy ‘dirty’ electricity and sell ‘clean’ electricity. They are not cheaper – we are being ripped off at every turn. And they are not more secure – we are dependent on our neighbours being willing to sell us electricity at times of scarcity.
The interconnectors are a giant swindle. They are nothing but an expensive sticking plaster over the reckless mismanagement of our dispatchable generation capacity. This can only be solved by investing in new sources of dispatchable supply (like gas and nuclear) so we can regain a position of strength. This investment would increase energy security, make us a price-maker in Europe and turn the interconnectors from an expensive liability into a valuable asset.
David Turver writes the Eigen Values Substack page, where a longer version of this article first appeared.
Taken from :-
https://dailysceptic.org/2024/01/18/the-governments-latest-net-zero-swindle-electricity-interconnectors-with-europe/
UK domestic energy consumers have no effective representation. A legitimate buyers’ cartel would be a good start. but shouldn’t be necessary if MPs (and others) did the job they are paid to do.
‘And yet, for Europeans, these are the companies helping to keep the lights on.’
How dare you!
‘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’
Well, damn, that’s got to stop.
‘with consumers often paying the price’
The people who save your heiny make money at it.
∴ it must stop.
This claim is complete nonsense and has nothing to do with consumer prces for electricity
If there are futures traders making billions then there are also futures traders losing billions
That’s how futures markets work
They are not spot proces
The only sure money makers are the organizations that take a small fee for trades.
Ultimately, it’s probably consumers who are on the losing side of the trade (via their electricity suppliers) even though they may not be active participants in futures markets
Correct. Pure traders must in the end trade with generators and retailers to balance their physical positions – even if that is ultimately only via deemed trade in the Balancing Mechansim. If they make money in the process it comes at the expense of retailers or generators or both. If money is made at the expense of generators much of it will come back to retailers via higher CFD subsidies.
If we look at the market history, it has been retailers who have gone bust, caught between paying too high an effective price to traders and price caps that don’t allow them to fully recover their losses. These losses have since been bundled onto consumer bills.
We only rarely hear of traders in financial difficulties. It does happen when they take a big bet that goes sour. An example was Amaranth in the US natural gas market, and of course Enron which eventually bit off more that it could chew and could no longer hide the consequent losses.
Retailers and generators tend to lose out because they do not tend to hire the very best traders and because their trading objectives are effectively set by regulators such as OFGEM: hedge to a target pricing scheme, and don’t fret about whether you could have bought any cheaper or sold at better prices. When the hedges aren’t available to purchase or are too risky to sell such schemes fall apart, and the lack of trading expertise is cruelly exposed.
fight against the climate crisis
Aka shadow boxing.