The area around Hamburg’s Reeperbahn is best known for its racy nightlife, but is also home to a startup whose latest offering sprung from the worst energy crisis in decades.
(Bloomberg) — The area around Hamburg’s Reeperbahn is best known for its racy nightlife, but is also home to a startup whose latest offering sprung from the worst energy crisis in decades.
Just a few minutes walk from one of Germany’s best known streets is the office of CF Flex Power GmbH, which has come up with the novel concept “Rent a Trader.” They step into the market on behalf of clients, which include a hedge fund manager, a municipality and a battery software company.
The European Union wants to get more than 40% of its power from renewables by the end of the decade. Relying heavily on intermittent wind and solar means huge price swings when these sources are plentiful or fade away. Factories and businesses are desperate for a steady supply of affordable electricity as many were burnt by price spikes exacerbated by Russia’s war in Ukraine.
“If you’re a trader who’s only looking to close positions and minimize risks, then in these situations you are having sleepless nights because you’re just not used to the volatility,” said Amani Joas, co-founder of Flex. “But if you’re a trader that has a lot of market experience, you cherish these situations.”
The “Rent a Trader” service is just one from the firm, founded last year. Its offerings center around the burgeoning intraday power market, where electricity for the next few hours is bought and sold. Volumes jumped 55% in March from a year earlier on the Epex Spot SE exchange, which is the biggest marketplace.
Flex has a handful traders at its Hamburg office. Most of them are colleagues who honed their skills at Next Kraftwerke GmbH, a utility now owned by Shell Plc. On Flex’s website, they liken themselves to “experienced mountaineers” who “thrive in risky situations.”
What sets electricity traders apart from peers in oil, metals or agriculture is the vast amount of data they need to track – which fossil-fuel plants are running, ever changing demand, weather reports and the overall generation mix. Sometimes they operate in several markets.
A few years ago, before Russia curbed gas supplies to Europe and France’s nuclear reactors were much more reliable, power traded in a range of a few euros during the day. Now, that span has increased tenfold or more.
The closure of Germany’s last three nuclear plants over the weekend will make renewables more important to plug a looming gap in Europe’s biggest market. That will create even bigger opportunities for traders who can handle price volatility.
One client using Flex’s trading expertise and market access is hedge fund Meteologic’s Futures Fund. The Israeli firm focuses on power markets basing its strategy on weather data with Flex executing the trades.
Backed by London-based trader and advisory firm CF Partners, Flex makes money in several ways, through fees or taking a slice of the trading profit they make. They can also cover shifts if a desk is understaffed or when regular staff is on holiday.
Flex also offers trading on behalf of renewable energy plants. Producers have tended to sign a long-term deal to sell the output to an industrial user or utility. Flex, like other companies including Danske Commodities A/S and Axpo Holding AG, offers to find the most competitive prices in the market. And because it is open around the clock, the firm just hired another person in New Zealand to cover European night hours.
Batteries will also become a very useful tool to help balance supply and demand in the future. Just three kilometers away from Flex’s office, a software developer focusing on that nascent technology have become a customer.
“We are not traditional electricity traders but software engineers,” said Lennard Wilkening, chief executive officer of Suena Energy GmbH. Sourcing out the buying and selling is “optimal” because “we want to focus entirely on our optimization software and they take over the electricity market aspects.”
(Adds chart)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.