Bloomberg columnist Javier Blas on the Opinion page, January 18:
You Switched the Lights On. Traders Made Billions of Dollars.
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 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....
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