Power traders: French volatility a threat, and an opportunity

Energy traders still reeling from the extreme volatility that hit France’s power market in the final weeks of last year have described the nature of the release of fundamental information at the time as “absolutely ridiculous”.

“We were desperate, looking everywhere for the information,” one senior trader from a European utility said in reference to a nuclear outage story that first appeared in local French media in October 2016. “By the time we found the news, it was two days later, and there it was in some magazine.”

Speaking at the E-World energy event in Essen, Germany, one source who trades both French and German power said his company had chosen not to trade France at all in December because “we had a good year from January to November, and we didn’t want to risk losing everything in one month”.

Market sources have previously said they chose not to take positions in French power during the height of the November-December volatility, statements which bear out in light of drops in over-the-counter liquidity on the near curve ( see EDEM 5 December 2016 )

In December, volume on the then-front-month plummeted 82% month on month and 50% year on year, meaning the decline cannot be related to the December holiday period.

The French power market was rocked by nuclear outage issues for months leading up to the end of the year, with price spikes at their most pronounced in November and December.

“You would see a move happening [on the near-curve] and you would think ‘someone out there knows something that I don’t’,” one head of trading at a European utility said.

The trader said his desk had abandoned any reliance on data released under the EU’s regulation on wholesale energy market integrity and transparency (REMIT), instead choosing to trawl a diverse range of sources, such as French local media.

‘It’s that simple’

For some, the way the situation unfolded should be accepted as part of the market, and companies should instead get used to doing their own homework in such situations.

“I have heard lots of complaints from smaller companies,” one analyst with two decades experience at a major European energy company said of the situation. “But, if you don’t understand how the flow of information works, you should not be trading that market. It’s that simple.”

He said his company used REMIT outage data only as a starting point, and then applied its own forecasts of capacity availability based on a number of other factors including the reliability of specific plants and the likelihood of the REMIT data being accurate – or not.

For some French traders, despite the complaints, the volatility was welcomed as an opportunity, as well as seen as a potential threat.

“It was good to trade France because if you were among the first to the news you could really take advantage of it,” the trading head said. “Sometimes you would take a big loss, sometimes a big gain. As long as you were within your position limits, it was OK.”

French regulator CRE said in November that it was satisfied with the way nuclear generator EDF informed the market about its nuclear plant outage schedule towards the end of last year ( see EDEM 18 November 2016 ). However, French competition authorities raided one week later French energy companies, including EDF, on suspicion of anti-competitive behaviour (see EDEM 25 November 2016 ). jamie.stewart@icis.com