U.S. Power Traders’ Bonuses Perk Up Even as Prices Get Squeezedby
Payouts are up 5% in the U.S. ‘marginally higher’ in Europe
Bets on transmission grid congestion remain a profit generator
As U.S. electricity prices tumbled to historic lows in 2016, one part of the market rebounded: traders’ bonuses.
Payouts for power traders rose about 5 percent with a median bonus of $472,500 last year, according to recruitment firm Kaye Bassman International. For a subgroup, traders who take on more complicated bets on transmission bottlenecks, bonuses may expand by as much as 15 percent, according to H.W. Anderson, an executive search firm.
Traders are working harder to maintain or boost returns in the low-price environment and the road ahead may only get rougher. Developers will bring online more natural gas-fired generating capacity in 2017 and 2018 than in at least a dozen years, while demand growth flattens. That has led generators and hedge funds to put more resources into short-term electricity markets where traders who can mine data to find profit excel.
“If you look across the board last year versus the average the year before, there is going to be a modest increase,” Peter Henry, a Manhattan-based recruiter for H.W. Anderson, said in a telephone interview. “From a recruiter’s perspective last year wasn’t massively bullish for power but now it’s much more positive.”
Facing similar pressures, the bonus pool in Europe is also likely to be “marginally higher,” said Shaun Smart, client partner at recruitment firm Commodity Appointments Ltd. Payouts in 2015 were subdued compared with previous years with a mean of just under 150,000 euros ($162,135), Smart said.
The range of U.S. bonuses varies widely for power traders from $50,000 for those focused on real-time markets to $2 million for proprietary desks, said Christopher Melillo, the Plano, Texas-based managing director at Kaye Bassman.
Bets on financial transmission rights or grid congestion, the cost of shipping power to areas short of generating capacity when demand spikes, remain a profit generator. For example, it’s not unusual for the Baltimore-Washington metropolitan area to be short of power during heat waves or cold snaps. While it may not cost more to produce energy in Pennsylvania or Virginia, the cost of shipping it there may surge.
Payouts are still well off the highs seen before the financial crisis about eight years ago. Bonuses fell after Congress passed stricter regulations in 2010 that prompted some banks to exist or pare their commodities trading operations.
“A lot of these organizations have restructured their compensation plans,” Melillo said.