FRANKFURT/OSLO (Reuters) - Short-term deals are growing in Europe’s wholesale power market as a surge in renewables requires traders to ensure that volatile wind and solar energy meets demand at all times.
The European Union is pushing towards clean energy sources, whose output follows weather patterns and is hence unpredictable.
This means more sales and purchases of power occur nearer the time of consumption, because electricity cannot yet be stored in large volumes and grids must keep a stable voltage to uphold supply security.
“The power market is becoming more short-term,” said Alexander Kox, head of power trading at utility group Trianel, which markets some 3 gigawatts of green power capacity.
“This trend is clearly intact and driven by the nature of the transmission networks.”
Spot power trading on day-ahead markets - which facilitate power delivery on the following day - at 10 European exchanges rose 6 percent in 2015, said British research company Prospex, which prepares market overviews.
Over the last five years, spot volumes have increased by 31 percent, it said.
Prospex estimated wholesale electricity trading on exchanges and in the wider over-the-counter market in the region at 8,517 terawatt-hours last year, with spot volumes constituting around 15 percent of the total.
The bulk of business still lies in futures such as annual, quarterly and monthly contracts, facilitating power shipments over long periods ahead.
But this business is suffering from oversupply of capacity, weak fossil fuel prices, tighter supervision and high capital requirements, prompting an exodus of some big trading firms and banks.
This is where new or specialist companies, such as Danske Commodities, and established energy exchanges see their chance.
Smaller positions turned around more quickly require lower capital provision and bourses offer centralized clearing.
“The market changes towards a more decentralized structure, which is an argument for exchanges as a meeting point for many small producers,” Peter Reitz, chief executive of energy bourse EEX, said recently.
EPEX Spot, part of the EEX group, after 6.9 percent growth in January/February volumes said on Wednesday it expects a strong 2016, especially in Germany, its biggest and most central market.
German photovoltaic and wind turbine capacity provided 33 percent of power generation in 2015 compared with 6.6 percent in 2002.
EPEX Spot’s bigger rival, Nord Pool of Norway, is also registering volume growth - in January/February, it traded 6 percent more than a year earlier.
Both vie for positions in each other’s backyard.
Success and profitability in short-term markets hinge on high-quality weather forecasts, round-the-clock staffing, and innovative IT systems, Kox said.
Editing by Dale Hudson