Rise of Volatile Renewables Set to Cut German Power Trade Profit

  • Trading earnings seen falling a third by 2019: Syneco
  • Renewables to drive trading automatization to cut costs

Increased wind and solar generation may cut German power traders’ profit 75 percent in the next eight years, according to Syneco Trading GmbH.

Earnings from trading before interest and tax for utilities may decline to 700 million euros ($774 million) by 2024 from 2.8 billion euros five years ago, said Thomas Gollnow, managing director of Munich-based Syneco, citing a study of all the nation’s utilities by consultants A.T. Kearney and utility Thuega AG, Synenco’s parent. Half of this decline could happen in the next three years, he said.

Germany’s unprecedented energy shift has tripled the share of clean power to a third of electricity production within the past decade. Compared with conventional generation, solar and wind plants tend to have smaller capacities and fluctuating output that require more trades for the same amount of power. This boosts dealing costs and hurts profitability, said Gollnow. 

“A lot of what we’re expecting is already standing in front of the door,” he said. “The old thinking of adding value by market know-how and analysis will completely disappear due to an excess amount of renewables and trading will just be about matching supply and demand.”

The number of trades in Syneco’s power and gas portfolio has jumped 17-fold to 500,000 over the past five years, while overall transaction volume has remained at about 250 terawatt hours, according to Gollnow. That’s almost half Germany’s total power use in 2015. The increase in trade numbers has cut the gross profit per average-sized trade to 6 euros from 400 euros, he said.

Thuega and A.T. Kearny’s study forecasted utilities’ trading profits until 2024 based on analysis of the companies’ earnings figures for 2011. The report on energy sector trends didn’t cite individual companies.

For a story on automated trading in Europe’s power markets, click here.

The rise of renewables is also driving demand for computer algorithms to buy and sell as traders focus on increasingly shorter-term contracts to react quickly to weather changes. This could lead to companies entering the market that are more specialized in automation than conventional utilities, said Gollnow, whose company has started to use computers to trade electricity.

“We will see more cut-throat competition going forward,” he said.

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