The theoretical potential to disrupt the energy trading industry


I am Patrick Bauduin, Content Director for the Energy Trading Portfolio at European Utility Week, and during the course of this year (2018) I will be on a quest to figure out what the future will look like for the energy trading industry.


In my first blog on this subject, I talk to Matthias Voelkel, Partner at McKinsey and global leader of McKinsey’s Capital Markets Infrastructure Practice. Matthias was one of the speakers in the EMART Energy 2017 conference programme on the future of trading. This session took place in October 2017 during European Utility Week in Amsterdam, and was one of the most well attended sessions on my programme. The session covered many topics such as Artificial Intelligence, P2P trading and Blockchain. So I asked Matthias what he thinks the most important technical opportunities are for trading.

The theoretical potential to disrupt

Matthias comments: “Insight generation via Advanced Analytics and automation technologies will allow energy trading to take place at a much higher frequency, especially in highly liquid markets such as the German intraday power market, and at a lower cost, especially in energy trading back office processes. Distributed Ledger Technologies, also known as DLT or blockchain, have the theoretical potential to disrupt the energy trading value chain, for instance via structural cost reductions through faster post trade processes, and create 'new' market structures. DLT are, however, not likely to disrupt 'traditional' energy trading in the next 5 years as the largest market participants rely on established market places with high liquidity that can probably not be established that quickly and easily with DLT. Nonetheless, DLT can facilitate the trade of much smaller amounts of energy with low transaction costs, for instance enabling private households to trade their solar panel electricity.

"Energy trading already relies on a number of technologies across trading activities today. The emergence of new technologies will offer opportunities for market participants to significantly improve their competitive positioning - but only if they manage to leverage the right technologies in a timely fashion to their full advantage."

Matthias Voelkel, Partner at McKinsey and global leader of McKinsey’s Capital Markets Infrastructure Practice


How will technology change trading in the coming years? 

Matthias sees many opportunities: “Advanced Analytics will change the way how we systematically generate insights from increasingly large data sets, for instance for weather forecasts and load management. The source of insight will partially shift from the trader to automated insight generation. Therefore, the analytics traders use will become a true competitive advantage. Directionally, energy trading will move to adopt the algorithmic techniques of the equities market. However, complex multi-leg trades will continue to have considerable 'old fashioned' IDB intermediation. Technological changes in the 'real underlying', for instance solar panels, can have a direct impact on the energy market structure, for example increasing numbers of energy consumers generating their own electricity and/or providing essential grid services such as storage, efficiency and demand response.

The trader of the future?

What will the trader of the future look like? Will a new breed of traders emerge from this?

According to Matthias, indeed new skills will be required from future traders. He explains: “More and more activities that traders today still drive "manually" will be supported through digital processes. Therefore, the future trader will need to be able to leverage new technologies seamlessly across the trading value chain. At many places writing computer codes, or at least being conversant in the code that is being used for the trading software will be important for this 'new breed of trader'. In highly liquid on-exchange markets many of the activities currently performed by traders may be at risk of being replaced by automated processes – unless traders respond, that is. On the other hand, in truly bespoke markets, where judgement, relationship management, connections, intuition, etc., are also key sources of competitive advantage, the trader and his/her social skills may even become more important.

In my role as content director I am always very interested to see the developments taking place in Energy trading. This topic will anyway be a focus area and an integral part of the next European Utility Week (6-8 November, Vienna), where I will be exploring the changing role of the energy trader and the use of blockchain for trading.

So what’s next? Let me know your thoughts!

Mail me with your comments to or join the conversation on LinkedIn.

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