Traders in power spot markets are dealing with ever greater fluctuations in supply. They struggle with short reaction times, large volumes and enormous volatility. One way to master this volatility is through automated trading systems based on algorithms that buy or sell positions using fixed trading strategies. Since 2012, the power exchange Epex Spot in Paris has offered an automated programming interface (API), enabling such automated trading systems. The API allows trading software to quickly respond to last-minute corrections on the intraday market without the need for a trader to actively trigger those trades.
According to Epex Spot, one-third of the continuous intraday trading volume is currently being traded automatically via APIs. For the German market, about 40 percent of the day-ahead and intraday trading volume was settled in October 2018 via API solutions. “We see a steady growth,” said a spokesman for Epex Spot. From a technical perspective, the European power exchange certifies independent software vendors (ISVs) for the use of the API. There are currently around 20 such ISVs on the Paris-based power exchange.
The trading strategies defined in the algorithm can be of varying complexity. The system executes them automatically. – Gunther Dütsch, Director, PWC
Customers benefit from the automated systems by being able to complete their trades within milliseconds. Trading can take place 24 hours a day, 7 days a week, without incurring any costs for shift workers.
Users of automated trading systems can set their own specifications and trading strategies for the algorithms, program them themselves or have them developed by the provider. “The trading strategies defined in the algorithm can be of varying complexity. The system executes them automatically”, explained Gunther Dütsch, Director at PWC, to Energy 4.0. “While simple algorithms can be had for about EUR 3,000 per month, more complex systems with higher costs for creation and maintenance are worthwhile, depending on how high the volumes traded are,” said Dütsch.
One of the first providers of such automatic trading systems for the electricity market was the Austrian company VisoTech. According to its own information, the autoTRADER covers all European trading platforms offering an application interface (API). The company counts 30 customers using this software, including major energy providers such as Steag, SW München, Verbund, Iberdrola, Deutsche Bahn, N-Ergie and, most recently, EnBW. The company advertises that the customer can plug their own algorithms into the system. “The investment pays off for the customer after three to ten months,” calculates a company spokeswoman. Since the system works 24/7 with only on-call service rather than a full night shift, it also eliminates high balancing energy costs, explains the company. In the future, trading algorithms could use complex patterns that a human eye would never recognise in order to discover how the market works. In the end, there would be smarter and more profitable trades, according to VisoTech.
From a cost-benefit point of view, EnBW would also make the investment again.
One customer of the Austrians is the energy company EnBW. The Karlsruhe-based company has recently opted for the VisoTech system and confirms that it is easy to use. Previously, the utility had relied on an internally developed system. Their in-house algorithms were easy to integrate into the VisoTech system, explained a company spokeswoman. The value of the autoTRADER primarily lies in the optimised exploitation of opportunities. The first experiences are positive: the system is highly available, and both the standard and internally developed algorithms work well. The program has significantly changed the everyday work of the intraday traders. But: “EnBW uses the software solution to support trading and not as a substitute for the traders,” the company emphasised. From a cost-benefit point of view, EnBW would also make the investment again.
And what does the future of trading systems look like?
With the growth of renewable energy, VisoTech sees a continued rise in short-term trading volume and related volatility, which is making manual trading increasingly difficult. In order to remain competitive, algorithmic trading is inevitable. “Automation continues to progress, but even in the medium term, people are not completely superfluous in trading. For precisely in long-term trading, it is necessary to estimate and evaluate complex fundamental data, which an algorithm has not yet been able to process”, explained Dütsch.
Blockchain is also not a game changer. “No blockchain platform so far can match the transaction times needed for intraday trading,” said the PwC man. He sees Blockchain more likely to succeed in over-the-counter (OTC) direct trading. The use of Blockchain is particularly attractive in peer-to-peer trading where small local markets form. Automatic trading on power exchanges will not make this obsolete, according to Dütsch.
Article written by Christiane Süßel and Claus-Detlef Grossmann and published in MBI Energy 4.0 April 1, 2019. © 2019 Martin Brückner Infosource
You can download the original article (in German) in PDF format.
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