(Montel) Robots or automated algorithmic systems could account for around half of traded volumes in the Nordic intraday power market over the next few years, said Nord Pool’s project manager for intraday trading services.
“Some say it will take five years before algo trading is being rolled out [on a larger scale] in the Nordics. I would give it less than two years,” Espen Døvle, of the Nordic power exchange, told Montel. He forecast automated transactions to account for 50% of all intraday trading in the Nordics from 2021 or 2022, when the Nordic TSOs – which own Nord Pool – will have introduced 15-minute trading blocks to comply with EU regulation.
Nordic traders currently trade in 60-minute blocks. The TSOs had planned to introduce the shorter time resolution by December 2020, but they recently postponed the launch to 2022 at the earliest to allow more time to ensure a robust system.
Some automated trading already takes place in the Nordic region, but its countries were lagging many others in central western Europe, Døvle said.
It will become increasingly difficult to handle the volatility [in the Nordics] manually.
In April, only 10% of intraday trading at Nord Pool for the Nordic region was traded via a software solution, known as automated programming interfaces (APIs), although not all the trades using APIs were submitted by robots. This stood in contrast to 37% at rivalling Paris-based power exchange, Epex Spot, in 2018.
The German intraday market has boomed in recent years as TSO have launched 15-minute time resolution to account for more wind generation in the power mix.
In the Nordics, meanwhile, the longer lead time of 60 minutes was primarily due to the region’s many flexible hydropower plants.
Yet a rapid expansion of intermittent renewable generation and shorter time resolutions could create “snowball effect” of more automated trading and more liquid intraday markets, said Døvle. “It will become increasingly difficult to handle the volatility [in the Nordics] manually,” he said.
Sigve Ekeland, head of trading at Norwegian utility Lyse, agreed and believed algorithms will do most of the job in the future and that traders will calibrate and check the entries. “I am only looking at this with positive eyes,” he said.
Some say it will take five years before algo trading is being rolled out [on a larger scale] in the Nordics. I would give it less than two years.
Ekeland said automated trading could put a value on the water of hydropower generators, using more available capacity around the clock if automated solutions proved useful.
And the most forward-thinking trading firms in Norway and Sweden – where hydropower still accounts for more than 95% and around 50% of power production capacity, respectively – could get a competitive advantage.
“It’s likely that the firstcomers will take [the] biggest margins,” Ekeland said.
Software vendors in Europe have already targeted companies in the Nordic region. VisoTech, a Vienna-based firm recently acquired by Trayport, has several customers such as Ørsted in Denmark, Modity in Sweden and Eesti Energia in Estonia.
Automated trading could put a value on the water of hydropower generators, using more available capacity around the clock. It’s likely that the firstcomers will take [the] biggest margins.
And market participants told Montel that the company had gained a large market share of Danish trading firms based in Århus, also known as Europe’s hub for intraday trading.
Tanya Graw of VisoTech could neither confirm or deny this but said the Nordic and UK power markets were the bigger growth markets for algo trading currently.
“The slower adoption in Sweden and Norway may be more likely due to the fact that most companies in these countries are trading only on Nord Pool, which currently has lower liquidity than for instance Epex Spot,” she said. She added that could change when the Nordic region introduced quarter-hour products.
Article written by Herman Moestue and published in Montel News on May 21, 2019.
© 2019 Montel AS
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