Power traders are pivotal to the efficient functioning of the power markets, acting as market makers, price risk managers, and, ultimately, facilitators for market liquidity and operational stability. However, it’s increasingly difficult for power traders to realise value from their trades, given the need to execute trading strategies that navigate the intrinsic volatility associated with supply-to-demand imbalances, commodity prices, weather, infrastructure constraints, and regulatory pressures – to name but a few.
How is the energy transition affecting power traders?
The velocity of change within global power markets is accelerating as we bear witness to the impact of the energy transition that has gained significant momentum over the last decade. Its impact can be summarised along several key themes:
- A supply side that is inherently intermittent and variable, which makes forecasting on any timescale difficult.
- End consumers now serve as distributed energy resources (DERs) that can tailor their consumption to meet the demands of the grid. More players in the power market means a departure from the simple linear relationship of supply provision to demand consumption. The ability to maintain grid stability, resilience, and reliability requires additional flexibility capabilities and fresh grid management strategies.
- Despite these operational challenges, new micro markets are opening up as Flexibility Service Providers (FSP), who own Distributed Energy Resources (DERs), are trialling flexibility trading services. There are new players who offer greater trading opportunities and market liquidity.
- The concept of microgrids has empowered peer-to-peer (P2P) transactions between prosumers and consumers without the need to involve the regional and national power network. The opacity of these localised microgrids means power traders are unlikely to be able to accurately forecast fundamentals at this level of granularity in the power market.
- The integration of batteries into the power grid has created a new dynamic where new players can store power and either optimise its consumption during peak hours or, indeed, sell it back into the grid.
Visualising data complexity
As part of this ongoing evolution, the power market is creating exponential numbers of data points that power traders need to ingest, digest, and then use to formulate executable trading strategies. This complex ocean of data can be visualised as a 4D problem through which power traders are attempting to navigate a profitable course, charting the way through a churning mass of fundamental data.
We can define the power data universe along these dimensions:
- Location: power networks can be distilled into a simple concept of nodes (supply and demand) that are across a geospatial plane. This defines the peaks and troughs of the waves in the ocean.
- Granularity: the nodes are at varying scales of consumption and/or generation from wholesale to residential. We can think of this as the depth of the data ocean, with a contribution towards the pitch and roll of the peaks and troughs.
- Temporal: power trading is 24/7. As such, the 3D model created by the granularity and location dimensions is different at any point in time, whether that’s within the next 10 minutes or the second half of next year. This dimension can be simplified to: “What will the universe look like tomorrow, next week, or at any other point in time?”
If we think about a market that needs to consider, at any point in time, from the next hour to the next 7 days, the impact of — 500 PV arrays in Spain, rainfall in Norway, French nuclear baseload across 40+ assets, charging and discharging across 2000+ EVs in Hannover… — things get very complex, very quickly.
Everyone knows power forecasting is difficult, but the density of nodes is only increasing, with more players entering the market. This is now a data problem – first and foremost. How do you translate complex data into consumable information that power traders can, themselves, transform into profitable strategies?
Short-term fixes won’t solve long-term volume
Most established trading houses which have set up power desks expect them to use existing traditional CTRMs (Commodity Trading and Risk Management) for compliance reasons, whether bespoke or off-the-shelf solutions, the latter likely customised to manage multi commodities and in-house business processes. Whilst some investments in new, power-focused CTRMs have been made, these solutions typically come from either niche players starting from scratch or are revamped traditional CTRMs that have had a “SaaS” makeover.
Meanwhile, power traders are left trying to monetise short-term market opportunities via a combination of existing CTRM features and a selection of ‘grey IT’ – which usually consists of the best efforts of a competent desk side analyst/developer who delivers an XLS/Python-based solution. This works as a tactical fix: it’s quick, but is it resilient and efficient, given the velocity, veracity, variability, and volume of power trading data in the intraday market?
How CTRM+ gets you future-ready
NTT DATA’s commodity trading team has approached the need for a sustainable, resilient, and flexible CTRM by creating wrapper services that bridge the gap between the needs of a power desk and the existing IT landscape within a company.
Fundamentally, CTRMs are – for the most part – established transactional, front-to-back processing engines, which provide a resilient and proven backbone for day-to-day commodity trading. However, they’ve not been architected as cloud-ready data platforms.
Therefore, NTT DATA’s recommended approach is to define a target operating model together with clients, using business and IT experience in conjunction with the relevant and applicable cloud provider. We unite best practices from the power trading perspective and that of the speciality software vendors. Our commodity specialists work alongside data and intelligence teams to define a solution which capitalises on the investment already made in the CTRM and creates a data architecture that is nimble, resilient, and scalable to meet the demands of a power desk.
If you would like to ensure your CTRM is ready to handle the complexities of modern power trading, contact us for a complimentary health check.