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My best guess is that the energy providers speculated on the energy trading market and lost, creating a huge gap. There's almost no risk for them, because when

by ToJans 5y ago

My best guess is that the energy providers speculated on the energy trading market and lost, creating a huge gap. There's almost no risk for them, because when they win, they make a lot of profit, and when they lose they can just tell consumers there is a shortage in energy. Ofc. this market is highly regulated, but if I understood correctly there's a lot of room in between the whitespace for interpretations. (Note : Highly simplified explanation, in reality this will be implemented via leverage and derivatives, but I've consulted for an energy trading division a couple of decades ago.)

dan-robertson 5y ago
Energy generation (at least in Europe) has changed a lot in the last 20 years. So have many financial markets. I would strongly suspect that the dynamics of energy markets are quite different today to how they were 20 years ago.
- waynesonfire 5y ago
  yes, the dynamics of course. brilliant.
- ToJans 5y ago
  Even though the landscape might have changed, I don't see a reason why trading should change (except maybe for opening up the market to smaller players who are "energy resellers"...) In the end, trading is betting on arbitrage, and I don't see why an energy producer would stop leveraging this "free money". A simple example: if there was good weather expected in another country, the org would set up a contract to buy the energy surplus in that country at a cheaper price. Whether or not or bio-gas & coal plants were running or not was mostly based on how much energy we needed after taking into account what happened on the trading floor, the price of our fuel and how much the other country would be charging. Of course, the other country could decide we didn't offer a good price and decide to tone down it's amount of energy it produced. I recall a lot of market making on the CO2 emission rights for example, but that's another story. This is a simple scenario, in real life it was way more complex. (Just think about planning something like the delivery of coal at a plant.)
jabl 5y ago
Energy retailing is, AFAICS, a very low fixed cost business. You don't need to own any expensive infrastructure. You just buy electricity from the wholesale market (usually time-varying, although careful operators can of course hedge their positions), and sell at fixed price to consumers. You essentially need a web site and a bunch of annoying telemarketers. It seems what has happened is that many of these retailers are some small fly-by-night operations. When wholesale prices are low, they make a lot of hay (making sure to store that somewhere that regulators can't get their hands on them), when the wholesale price rises, well, declare bankruptcy, and start a new company doing the same. Rinse and repeat. Regulators should really step up the game, making sure that retailers are properly hedged etc. Or then forget this idea of "deregulated" electricity markets.
- ToJans 5y ago
  The org I mentioned in my previous post was not a reseller but an energy producer; they were the largest producers of energy both in our country and the neighboring countries. The calculations for plant scheduling took a gazillion of parameters into account (CO2 emission rights, pricings of different kinds of fuel, weather predictions, ...) These markets not only trade energy, but also fuel, logistics, CO2 emissions, ... (using direct quantities, options, leveraged products, things like insurance, ... If you could imagine it, there was probably someone trading it.) If you are into this stuff: I built the prototype that validated their portfolio position with the other suppliers; it was a protocol called EPM (Electronic position matching), developed by the EFET (European Federation of Energy Traders). I am not sure how it evolved, as this was the first iteration of the protocol...

by ToJans 5y ago

dan-robertson 5y ago

Energy generation (at least in Europe) has changed a lot in the last 20 years. So have many financial markets. I would strongly suspect that the dynamics of energy markets are quite different today to how they were 20 years ago.

waynesonfire 5y ago
yes, the dynamics of course. brilliant.
ToJans 5y ago
Even though the landscape might have changed, I don't see a reason why trading should change (except maybe for opening up the market to smaller players who are "energy resellers"...) In the end, trading is betting on arbitrage, and I don't see why an energy producer would stop leveraging this "free money". A simple example: if there was good weather expected in another country, the org would set up a contract to buy the energy surplus in that country at a cheaper price. Whether or not or bio-gas & coal plants were running or not was mostly based on how much energy we needed after taking into account what happened on the trading floor, the price of our fuel and how much the other country would be charging. Of course, the other country could decide we didn't offer a good price and decide to tone down it's amount of energy it produced. I recall a lot of market making on the CO2 emission rights for example, but that's another story. This is a simple scenario, in real life it was way more complex. (Just think about planning something like the delivery of coal at a plant.)

jabl 5y ago

Energy retailing is, AFAICS, a very low fixed cost business. You don't need to own any expensive infrastructure. You just buy electricity from the wholesale market (usually time-varying, although careful operators can of course hedge their positions), and sell at fixed price to consumers. You essentially need a web site and a bunch of annoying telemarketers. It seems what has happened is that many of these retailers are some small fly-by-night operations. When wholesale prices are low, they make a lot of hay (making sure to store that somewhere that regulators can't get their hands on them), when the wholesale price rises, well, declare bankruptcy, and start a new company doing the same. Rinse and repeat. Regulators should really step up the game, making sure that retailers are properly hedged etc. Or then forget this idea of "deregulated" electricity markets.

ToJans 5y ago
The org I mentioned in my previous post was not a reseller but an energy producer; they were the largest producers of energy both in our country and the neighboring countries. The calculations for plant scheduling took a gazillion of parameters into account (CO2 emission rights, pricings of different kinds of fuel, weather predictions, ...) These markets not only trade energy, but also fuel, logistics, CO2 emissions, ... (using direct quantities, options, leveraged products, things like insurance, ... If you could imagine it, there was probably someone trading it.) If you are into this stuff: I built the prototype that validated their portfolio position with the other suppliers; it was a protocol called EPM (Electronic position matching), developed by the EFET (European Federation of Energy Traders). I am not sure how it evolved, as this was the first iteration of the protocol...