It’s becoming harder to earn money from buying and selling energy in Europe as prices slump and short-term weather factors drive trading, according to Vattenfall AB, the Nordic region’s biggest utility.
“It is tougher to make money from energy trading these days, compared to a few years ago,” Stefan Dohler, Vattenfall’s head of asset optimization and trading, said yesterday in an interview in Stockholm. “Markets are maturing and margins are becoming thinner.”
German power for next-year delivery, the European benchmark contract, fell to an eight-year low on May 2 as the longest recession in the single-currency era curbed energy use. Increased generation from solar panels and wind turbines have made prices more volatile and weather-dependent while the influence of neighboring markets has risen, Dohler said.
“Price volatility is growing on the short-term markets and, consequently, the overall trading focus is moving to the prompt market,” he said. “You need to understand the impact of weather on prices much better than in the past, since it is becoming an increasingly decisive factor. Cross-border country spreads are becoming more important.”
Vattenfall is the biggest power generator in the Nordic region, where it produces electricity by running water through turbines and splitting atoms at nuclear reactors. Average next-day Nordic prices dropped 33 percent to 31.21 euros ($40.52) a megawatt-hour last year, the lowest since 2007, on the Nord Pool Spot AS exchange in Oslo as higher-than-usual hydro output depressed prices.
Vattenfall’s trading unit has 230 employees, including traders and analysts, and buys and sells power, natural gas, oil, biomass, carbon emission permits and freight from Stockholm, Hamburg and Amsterdam.
The company bought and sold 1,930 terawatt-hours of power in 2012, compared with 1,402 terawatt-hours at EON SE and 1,177 terawatt-hours at RWE AG, according to Thorsten Ziegler, a Vattenfall spokesman in Hamburg. Power consumption in Germany, Europe’s biggest market, was 526.6 terawatt-hours last year, according to German energy lobby BDEW.
State-owned Vattenfall’s net income rose to 16.9 billion kronor ($2.6 billion) in 2012 from 11.1 billion a year earlier. It doesn’t publish separate profit numbers for the trading unit.
“Our ambition is to maintain net contributions, which have varied between 2 billion and 3 billion Swedish kronor a year, but it will be more difficult to achieve that level in the future,” Dohler said.
The company is expanding energy trading outside of its traditional regions into neighboring areas, Dohler said. Stephen Asplin, Vattenfall’s head of trading, said in November the company would start trading French natural gas and Italian power in the first half of this year.
“The trading environment is changing, so we need to adjust, to remain as good as we have been until now,” Dohler said yesterday. “You can create a lot of value if you are skilled, and have a good understanding of volatility and are able to grasp the opportunities this offers.”