Modo Selects: Renewable power trading with Julie Arnold (Head of Power, Gas and Emissions @ Dare)

What is power trading?

I think sometimes people fear power because it's like a concept. You can't see it. You know? And it's not the same as the same concept as if you're trading other commodities like sugar or coffee or Yeah.

Coal. But it's exactly the same. You buy and sell it on an exchange, on on the screen in exactly the same way as all these other products such as gold or wheat, all these commodities that you can trade. The one major difference is when you get to delivery.

Yeah. It's it's fast, and you've got limited time if you make a mistake, if something goes wrong. There's consequences. You need to be on the ball all the time.

And how does that change the market from a trading perspective?

And And I always say to them in a simple way, you have one job.

And that one job is to predict the future.

Hello, and welcome back to Transmission. Today, we are revisiting an earlier episode, trading renewable energy with Julie Arnold, head of power, gas, and emissions at DARE.

Over the conversation, Julie explains what power trading actually entails, how data and information flow has impacted trading, how various mechanisms have affected the markets, and much more. If you're enjoying the podcast, please hit subscribe so you never miss an episode. Leave us a review wherever you listen, and share with your friends. Let's jump in.

Hello, Julie. Thanks for coming on the podcast and making it up to to Birmingham. Welcome.

Thank you.

So for folks who are watching or listening, we've got Julie Arnold on today from DARE.

And how do I introduce you? I don't wanna say a veteran because that makes you sound old, but a titan of of of power trading. And we're gonna answer some big questions today about how does the how, you know, how does the power market work, and how do you trade it? And how has it changed over the last twenty or so years where you've been doing stuff in it? But before we get started, Julie, who who are you? Where have you come from? And what what's the company you work at right now?

So I joined the power industry twenty five years ago just as the the UK power market was deregulating.

And so I've seen all the changes right from the very, very beginning. Prior to that, I had a previous career as a as a government statistician working for the UK government.

Oh, which which government, by the way? Who was it? Who was in then?

Blimey.

I'll put you on the spot now.

I can't even remember.

We'll edit this in afterwards. Someone anyway, I've put you on the spot.

So John Major.

John Major. Yeah. Probably. What was that? So sorry.

You were Nineteen ninety four.

Yeah. It would have been Tories, wouldn't it?

Yeah. Probably John Major.

So, so you did that, and then you worked the energy industry, and you've seen a lot of change. And and what companies have you worked at along the way?

So I started off in one of the old UK retail companies.

And then after four years there, I went to RWE Trading when they first entered the UK market. So I was working for them originally on the UK Powerdesk.

And I ended up staying for seventeen years working on a various number of trading desks, trading as well as UK power. I traded a bit of gas, c o two when the market started in in two thousand and five. I spent ten years on the coal trading, running the coal trading desk. And my final four years there was out into the Singapore office running the Asia Pacific power trading business. So I was trading Australian power and trying to pioneer the Japanese power market, which is one of my passions.

Oh, wow. We got a lot to cover here. Yeah. Okay. And then, now you're, DARE. And what does DARE do?

Apart from, fantastic branding and marketing, which, Knock it down to me.

We respect, very much. But what what does Dare do in in the in the markets?

So they're a relatively young company that started in twenty sixteen, and I joined in twenty twenty. And the company was purely a trading business, and I joined to set up the power trading and get us into the renewables markets. So this was during the lockdown when I first joined. So the first six months was all on online, which is quite an interesting time. And there was a lot of work to do to recruit the team, to start trading in the all of the power markets across Europe, which we are doing so now, both physical and financial power trading.

So it's a company that's set up to trade. So were they before, before you joined, what else were they trading?

Was it So so they would trade they trade different energy derivatives.

So it's all all financial trading that they were doing then, mainly in in oil and gas products, but financially settled. So we don't have any physical assets, no physical delivery, or proprietary trading.

Awesome. And this is the first company that we've got on that's that started not from an asset background, but from a purely markets financial background. So this is gonna be interesting. And then they brought you on, and you built the PowerDesk. And then how much power does Dare trade these days?

I couldn't tell you the exact volumes, but we're trading in all of the the European markets that have liquidity, so Germany, France, Switzerland, Netherlands, GB market. And as well as trading the futures, so we trade big volumes on the futures and forwards market, But we're now also trading the physical spot market in most of those countries as well.

Okay. Cool. And you guys are also doing some some interesting things with batteries as well. Right? Do you want to cover that?

Yeah. So one of the reasons that the owners of the company wanted to get into power trading was to join the movement to the energy transition. They wanted to get into a renewables focused business. So a great way to for us to get into renewable energy is to we need to use our skill set. What are we good at we're good at trading? So if we start trading power and then that gets us into doing more and more renewables, then we're using the skills that we've got to to get there, really.

Okay. Cool. And so, let's just cover something really basic. What is power trading?

I think sometimes people fear power from it because it's like a concept. You can't see it. You know? And it's not the same as the same concept as if you're trading other commodities like sugar or coffee or Yeah.

Coal. But it's exactly the same. You buy and sell it on an exchange, on a screen, in exactly the same way as all these other products such as gold or wheat, all these commodities that you can trade. The one major difference is when you get to delivery.

K.

So if you're delivering a physical commodity such as coal, for example, you can deliver it in a window of a you know, a monthly window, whereas power has to be delivered in half hourly settlement periods.

Okay.

So that means you've got to be a lot more precise with your delivery. You need to there's a lot more data involved because you've got all the half hour work to do. And that's why the price can be quite spiky as well because if you're buying and selling to deliver in one specific half hour without storage, I know we're gonna talk about storage, but it there's very relatively little storage at the moment.

So so because the power because you can't really store electricity, of course, you can now with batteries, but we need a lot more of them. If you're buying and selling wheat or coal, as you say, you can store it somewhere.

You can put it in a Just a pile on the floor.

Exactly.

Yeah. But with with power, you can't because you gotta turn up a generator and turn all the water down to match it. Okay. And that makes it more complex.

So let's go straight back to the start. So in the early I was gonna say the early days of, when when you joined the industry, the power industry, what was it like then? Because we were just the the markets were just becoming privatized, and, there was a lot of change. What was trading power like back then?

Well, it really wasn't in the very, very early days, I remember when it first started in during nineteen ninety eight when the domestic market deregulated, which meant that customers could choose which supplier they went to. And then you needed to be able to wholesale trade power. There was literally one trade a week in in the very early days, and there was no screens to trade on. You had to telephone someone. When you did a deal, you had to write it down on a piece of of paper. And I tell some of the guys in my team that probably weren't even born at this time, and they they just look at me like I'm crazy that we had to write down every single trade we did. There will be no way of doing that now with the enormous amount of data.

For me and probably for listeners, it's quite remarkable to imagine a world where you you couldn't choose your own energy supply. But let's even before that, what was the case before that? And then how did that change? So before power markets became private, what you was it like water?

You just got a a thing to Exactly like water.

Yeah. If you lived in London, your supplier of power was London electricity. And if you lived in Leeds, your supplier was Yorkshire Electricity. That's where I used to work on the retailers. Yeah.

And then they privatized the market, and customers could choose. And then suddenly that you had to create create liquidity for this stuff out there.

To create a wholesale marketplace. Yeah. And that's the first thing that the regulator needs to do is to create that place where the producers and the suppliers can buy and sell to each other, where they can trade with each other. And the other interesting thing about those days, which you've probably heard of, was the US companies all came into the market to start getting involved. So the likes of Enron and DynaJi, and there was a number of them all came in for a few years and then left again at the demise of Enron.

Yeah. It was, a spooky spooky time.

Yeah. Interesting.

And so, alright, so in the late nineties, people were doing, you know, one or a couple of trades a week, buying and selling power. These must have been big, big deals. And then you are right you're call you're calling the person up on the phone and saying, hello. I want this for this price. And then you're writing it down, what like, faxing it, sending it in a post?

You well, you would you could still trade through brokers. So you'd still have the broker on the phone, and then you'd write your deal. You would then get it into your system at the end of the day, and they would produce confirmations.

I was having a big think when you mentioned that you're gonna ask me this question about how has things changed from then until now. Mhmm. And there are so many things that's changed, but I've tried to categorize it into two main categories.

Oh, let's do it.

So the first category is to do with data and data technology. Mhmm. So that's one of the major changes, and most of the changes that we can see feed into that category. The other category is the fundamentals of the market, which is, again, divided into two.

One of the one of the fundamentals that's changed is the types of generation. So we've gone from fossil fuels to renewables. Yep. And the other fundamental big change is the growth of interconnectors and the growth of connectivity of power markets, which has been brought on by expansion of the LNG market in the last ten years.

So it's LNG being LNG is a liquid gas, so a global market.

And as I'm sure you know and and a lot of people do know because they hear it a lot in the news these days that gas is a big part of the the power price. So the the LNG gets shipped around the world, and that's driven by global factors. And that impacts the price here in the UK as it does in lots of countries.

So if I've got you right, the we we let's let's go down each rabbit hole separately.

Yeah. We've got the we've got the data and the infrastructure around that, which is interesting. The information flows. Yeah.

And then the second bit is the generation mix and then this emergence of basically putting gas on ships Yeah. And and that completely rocking the whole market Mhmm. And changing it forever. Let's start with the let's start with the fundamentals.

Right? So we've moved from a fossil led I mean, it's still mostly yeah. Probably more than half a generation is is fossil, but I'm gonna get pulled up on that. If you're listening, probably probably wrong.

So but we've gone from mostly fossil to to towards renewables. And how has that changed the market from a trading perspective?

Yeah. Well, when the market was in in the original form in the late nineties, early two thousands, and we were, as traders, trying to make trading strategies to come up with ways to predict how the price would move in the future, we would build our analysis. And that analysis will be built from driven by costs of coal, costs of gas, and how that would look in the future. So you would analyze which which was your marginal generation, and you would need to input how you thought the gas price might move in the future that would impact your power price. And that they're known as trading dark spreads and spark spreads, which you you may have heard of.

So When you say marginal, that is the the most expensive plant that's getting that's needed right now.

So for example, if what would be a good example?

Not the most efficient plant, but a less efficient gas plant would usually set the price the marginal price right now. And that is the that that's the the power price right now is set by the most expensive expensive plant that's running. Yeah. And you guys would try and calculate what that is. Yeah. Okay.

Whereas once if you move to a world that's a hundred percent renewables, and I know we've got we're going through this transition now to get to that point.

I remember when solar and wind started to get built, and there was a big, you know, big publicity about we're gonna become a renewable an renewable world in in terms of energy. And I remember thinking, well, that's that's impossible. That's ruined the market. How can I trade? Because I don't know when the wind's gonna blow, when the sun's gonna shine. There is so much information that's needed to be able to predict the prices in the future.

Okay.

And I just thought that's impossible. But when you start to look at it and you start looking at your weather forecasts and your analysis on your weather and bringing in all the data that we've got that we've got these days, which ties into my first point, the data on when renewables are running, when they're not running, where they're located, how the wind is different in different parts of the country. There is so much data on all this. And once you start to dig deep and look into this, you can make a pretty good effort to to use that to predict future prices. And that's the journey that people have been going on in the last few years.

But there's a increasing complexity here, I guess. Yeah. Because there's there's a lot of, there's a there's a lot more variation in the inputs and a lot more complicated model. I guess, although because a gas a combined cycle gas turbine plant, so CCGT plant, an efficient gas unit on the system, Although it's a complicated bit of kit, it's quite there's some simplicity in how you model it.

Right? Because you know what the overheads are. You can guess what the overheads are. You know what the gas prices.

You know the efficiency, you know the start up costs, all those sort of stuff.

But with wind, it's a it's a it's a different type of beast. Yeah. And then you've got the the grid constraints and the locational matters, which, again, are complex. And then interconnectors. Let's talk about interconnectors for a second.

Wild ride, with interconnectors. They I still don't I would we need to get someone on the podcast to explain how those things work.

That changed the market in a big way, didn't it?

How what are you thinking about now interconnectors on on the grid, and how does that change your trading for the world?

Again, it makes it so much more complicated.

Back in the the very first days of the power market, we really were in Ireland. There was one interconnector into France for two gigawatts, and that was commissioned in, I think, nineteen eighty six. And then there was a long gap. I think the next one was about two thousand eleven before we got any more interconnection.

But what it meant that there wasn't enough interconnection to constantly be flowing.

Mhmm.

It would be constantly flowing, but you would get constrained. So you needed more interconnected capacity to flow even more.

Right.

So you got less diff if you if you had infinite amount of interconnection, your price across where you're interconnected to across into Europe would be the same all the way across Europe. But that was quite constrained in those days. Whereas now, there's about seven gigawatts and we're float so we we can flow to Ireland, you can flow to Norway or Netherlands or Belgium, and there's more into France.

So We should have twenty gigs of interconnection by the end of this decade.

Yeah. That was that was floating around the office last week.

And the difficulty for us with that is that you don't need just the UK data and the UK fundamentals to try and predict future prices. We need to know about the fundamentals across the whole of Europe. And that's why we don't just trade power in GB. We trade power in all of the countries that are connected. And then with the LNG angle, we can be connected we're connected to Asia. Our power price is connected to what's happening in Japan and Australia because of the link of the gas. So it makes it it's made it a lot harder to trade power in one country because there's so many other things that you need to know.

And it's going in one direction, right, which is more interconnection, more globalization of this market.

And more and more data.

And I find that quite exciting. Yeah. Yeah. I'm a mathematician by trade, so, data and numbers are exciting for me. And I I must say, if there's if there's anyone looking at careers that's a mathematician or a engineer, it is a great industry to get into because there is so much data and technology. It's just very exciting, and there's constant change.

Let's talk about data now then. So data and information flows. Let's talk about the last twenty years. So we were doing pieces of paper, faxes, and telephones.

What what what's changed?

There there was pretty much no data in in those days. So there was a lot of advantages if you were a big generator because you knew when you knew the fundamentals of your plan. You knew when you'd be switching on, switching off. Whereas if you were a pure trader in those days and you were missing out on that information, you're at a disadvantage. So the government then redesigned the market. There was a big redesign in two thousand and one, the new electricity trading arrangements, and that's when they brought in the spot market. Before then, there wasn't a physical spot market that anyone could could trade.

So what's a spot market?

The spot market is the the very front of the market. So tread the spot market is typically it's not a it's not a very tight definition, but it's typically trading for today and tomorrow.

Okay.

Whereas the opposite is what you mentioned earlier, curve trading. So curve trading is typically trading further out into the future. And generally, traders will be either a spot trader or a curve trader at any one point in time because they're quite different.

Spot traders or curve they sit in different. Alright. A few big questions here. Making it On your trading desk, is there a ton of is it like it is on the films? There's a ton of screens. Everyone you know, two by phone, cell phone.

People are you know, there's there's it's a paper airplane flying around.

That's how I imagine it. Do you have are these people sitting separately? Do you have a spot spot trading desk and a curve trading desk?

Yeah. Yeah. We do. But but we try and all sit as close together as possible. So you wanna squeeze out as men as many people and have as much sharing of information and talk about the market and help each other, and it's a fun place to work.

So to be clear, right, your business model at Dare is buying stuff at one price and selling it at another price and making money between those two things in simplest terms. That's what a trader does. Right?

Absolutely. And and I always say to the analysts in the team, I've got a number of young analysts that came from outside the industry, future.

So everything that you do is going to predict the price, whether that's in the next half hour, the next day, the next week, the next year, the next three years.

Every single thing that you do, focus on predicting the future. If only it was that easy.

If only. Yeah. Yeah. And the the thing is there's a there's a load of people all doing the same thing Yeah.

Betting against each other. Right? So Absolutely. Let's, let's go back to the I was interested that you talked about spot and power curves or curve trading.

Is that right? Spot is is now. That's that's stuff trading for now or tomorrow. So it's real almost real time.

Some people call it short term. Some people call it spot.

You've got this different term that Or is it No.

Spot like, on the spot.

Oh, on the spot. On the spot. Okay. Right. And then curve. What's what's a what's curve trading?

So curve is just the future. So that can sometimes be called futures trading, forwards trading, curve trading. It's just different terminology that all mean the same thing.

Is that me buying a selling power for delivery in the future?

For delivery. Yeah. So you could trade now you could trade twenty twenty four delivery.

You buy and sell twenty twenty four.

So I can buy now power for a year's time. And then in that year, I might wanna sell it again and buy it again and sell it again. Yeah. Right. Okay. And then these are are these standardized contracts? Is it do you buy a month or do you buy a week or a day?

Or There's different there's different terms.

Normally, how markets are structured, and this will be the same in other commodities as well, you'll get more granularity. I'll introduce a new term for you. Granularity is the length of the period that you're trading. So half hourly granularity if you're trading a half hour or monthly granularity if you're trading a whole month.

So normally, the closer to the spot you get, the smaller the granularity is. So we'll have the first couple of days you can trade hours or half hours. The next day, you can trade day ahead as a whole day. The next week ahead, you can trade as a week, and the month ahead, you can trade as a whole month. The quarter ahead is a quarter, and the year ahead is a year. And it tends to roll out to bigger and bigger granularities the further out along the curve you get.

And are the markets always happening? You know, are you are you trading power overnight, or is it just nine to five? Or how does it work?

Well, some some companies will do the twenty four hour shift. We're do we do extended shifts there at the moment. So we'll typically be starting very early in the morning and trading through till midnight where the most activity takes place.

Okay.

But we have the people would take in turns to they they we wouldn't expect them to come in for all those hours every day.

Yeah. Yeah. Okay.

Or not that hard.

It sounds kind of exciting. Right? Because there's because you it's it's very win or lose. It's up, down. Yeah. You know, it's it's it's, there's something about it, and there's that instant gratification or pain.

Well, it is exciting, but it's hard.

Yeah.

It's it's competitive. It's complex. It's it's not easy.

And then so what's you talked about intraday trading. Why is the market different, and why is the way that you buy and sell power different?

Well, I guess the main reason that intraday is different is because it's it's gonna get delivered very soon. So if you're if we were trading now and we're trading for three hours ahead, In two hours' time, you're not gonna be able to trade that period period anyway.

We've gotta be able to do it.

So you need to know what you're gonna do with it, and that's, probably one for another day.

Okay. Alright.

But But, yeah.

It's it's fast, and you've got limited time. If you make a mistake, if something goes wrong in terms of you don't notify the correct volume or you the deal goes wrong in the system, there's there's consequences. You need to be on the ball all the time.

I was gonna say, right, because if I'm, like, if I'm EDF or Centrica's British Gas or one of these, you know, big supply companies or what you know, octopus.

I can buy and sell this power, and if it then I have a whole there's a portfolio of demand that I might have some flexibility behind it. So you've end up in a position where I need to I've I've bought power. I need to get rid of it somehow. I can unwind it with a physical asset or fit something in the physical world.

But I guess for you guys, you're in the non physical world, so you gotta you gotta make sure there'll be a buyer for it later or Yeah. I guess that's set by the price, isn't it? Yeah. There's probably a market and a mechanism for that.

So let's talk prices for a set because hasn't the the market's been pretty bad.

Don't ask me what the price is gonna be in the future. What's the price?

I'm not the person that's me.

Let's look.

What's been going on recently? I mean, isn't it just bonkers? There's some days we've seen prices above, you know, a thousand pound, couple of thousand pounds. Yeah. We've seen negative price. Yeah. What's what's going on?

I I mean, this is really the results of the renewables.

So you you will have noticed, and I've been much more aware this year than I have in previous years, that when it's very, very cold on those cold days that we've got cold days now, it's not windy.

And if the generation is wind generation, a lot of generation is coming from wind, the generation isn't there. So the price is gonna be very high when it's not windy.

You got a double you got a double whammy where you need a load of power for heat, and it ain't windy enough.

So that's why we need more batteries.

We do need a lot more batteries. And what about, how does a price become negative in the power market?

Price becomes negative when there is too much generation.

Mhmm.

And the grid is required to pay somebody to switch off for a generation. So you can actually, as a generator, earn money by say, if you're a gas generator, you are scheduled to run, you can earn money by not running if there's a negative price.

Because you get paid to not helpful yeah.

You get paid to not run. And it makes sense, supply and demand. Yes. All markets don't have negative prices.

I spent a lot of time working in the Japanese market, and the current rules didn't allow for negative prices.

But they've got a big problem in the future because if the price signal isn't there for people to switch off generation when there's too much of it, you're gonna be you're gonna have an imbalance.

Interesting.

It has to be dealt with.

So, price goes negative if you get paid to switch off or to turn down. This is the thing. Right?

You can imagine all the Daily Mail front page headlines about people being paid to switch off.

Yeah. But what we're saying is, actually, it's it's a useful tool.

Market economics. It's supply and demand. Yeah.

Interesting. And we've we've even saw day ahead prices go negative at one point. Yeah.

Can we just talk about exchanges for a second? I'm gonna say in the olden days, you know, just to to trigger you. But so now we've got exchanges like Nord Pool, mainly Day Ahead liquidity exchange, and then we've got Apex, Apex spots, which I love that there's a lot of intraday liquidity on that. What we what what did we do before the exchanges, and when did they turn up?

So they turned up. I can't remember the exact year. I was probably trading coal at the time when those, exchanges appeared. But prior to two thousand and one, though it the market design was completely different. It was called a gross pool mechanism where every piece of generation had to go through a centrally cleared mechanism, so that you didn't need a spot market for trading physical in those days. After that, when there was a spot market created, it's going back so long now that it's quite hard to remember what it was like at the time.

There was a continuous half hourly market. So you could trade all the individual half hours in the GB market. It's called the APX at the time. And it was just like it wasn't an auction or a cleared exchange. It was just buying and selling with each price moving on screen as any forward market would.

So they didn't have that Yeah.

Okay. Stuff.

Do you know that concept of bidding in this at the time of day where the exchange is clear and it it was different.

And then they got introduced, and they got bigger.

And Another massive.

Yeah. Right? These exchanges are huge.

Yeah. And all the way across Europe, they've all got, you know, the countries have the exchange now.

So I've gotta go off piste a little bit here.

We've gotta talk about trading coal. It sounds absolutely fascinating. So you have to, was this nonphysical or is this physical?

Personally, I was trading financial futures and options, but the team, we we traded physical as well around the world.

And was this when we had our own coal mines, or was it coming in for like, it does it come on ships? And then do you have to put it on trains? And how does all that work? Do you have to pay to transport it?

Oh, absolutely. Yeah. The freight market is a a another functioning commodity market, dry bulk. So you could trade and the team did trade the the the dry bulk freight and the freight derivatives as well. So, yeah, the I started trading coal in two thousand and five when it was a very immature market, very relatively new market. Only just started to go on screen then. But, yeah, we we would trade big physical boats full.

I mean, yes, we did have full of coal.

Boat full of coal. Yeah.

A bit like trading football field sized ship, full of coal.

Coal. Yeah.

And then you'd buy that, and then you'd you'd sell it. And then, I guess, you'd have, I don't know, Drax power station or one of these big units would you know, Ratcliffe on the soil would need to burn it.

And then you'd, And there were a lot of coal mines in the UK then.

So we had, when I was at RWE, we had a coal fired power station in South Wales, and and a lot of the coal would come from South Wales as well as from Russia.

Oh, wow.

But that that's all gone now.

Okay. One one other question on the on the physical stuff then. So these, for example, the pellet pellets that Drax burns and there's a couple of other is there a market for those pellets?

The biofuels, ma'am. Yeah. There is a map. Yeah. Yeah. I I I am not totally up to date with what's happening in that, but I think there's a cleared wood pellet product. Maybe wrong.

Absolutely. You can trade anything. There's an everything product. Right?

And when I used to work for the government as a statistician, I worked in the agricultural industry. So I was in the grains part of the of the government. And, obviously, people you know, you know, you can trade wheat and oilseed rape and barley and oats. They're all tradable products, but they you know, you can trade in potatoes and egg trading, and there's all sorts of things you can trade these days.

And then all the derivatives on top, the non physical on top. There's a market for everything.

Alright. So one of the things that gets me is to start a trading company or trading house or, you know, something like that, you gotta have so much conviction that you you're you're gonna beat the market. And that that I find fascinating in itself. And it's also it's costly. Right? To get into to to play in these markets is expensive.

So can we just talk for a second about how how that I mean, how much money I don't wanna turn Modo into a trading company.

You know, what kind of money do we need behind us to get this done?

A lot of money, especially now. So if you wanted to trade power or gas or whatever you wanted to trade on an exchange, every time you do a trade, you need to pay the exchange money to secure that trade, so which is called a margin payment. So let's say, as an example, we're gonna trade q two power, and we're gonna go and buy q two power on the exchange the power exchange.

As in next quarter of Next quarter.

Yeah. Yeah. Yeah. April April to June is q two. You can go and buy that. That that very night, you will have to pay the exchange a number of probably a few hundred thousand pounds as a margin payment. And what that's for is that if between now and when you sell out that position, your company gets into trouble or goes bust, that the exchange can cover the cost of trading out of that position.

And because we've had such high prices and such high volatility recently, that price of those margin calls has has exploded. And it's a bit of a vicious circle because it's so much more expensive to trade now.

There's higher risks involved for trading because that is Well, it pushes the cost of trading up.

And that means that people they want to trade less because the risks are higher, and they have to trade less because the cost is higher. But that then pushes down liquidity. So liquidity is lower, then the volatility increases.

So I I wanted to get to this at one point.

Right? Because the simple way of looking at traders is, you know, they're just skimming, they're taking You know, they're they're just buying something cheap and selling it higher. They're not they're not actually adding value to society. Right? That's a that's a very basic way of looking at it. And I imagine it's quite a common thought. But then what we're getting at here is that that liquidity that traders provide as participants in the market is actually is actually a common good, for the market and for end consumers and prices in general.

Of course, I would say this. But the way I would explain that is if you really simplify it and assume you've got generators that generate and sell, and you've got retailers that sell to consumers that need to buy, and so the the generators sell into the wholesale market, the retailers buy, what happens if the day that the retailer needs to buy for their customers, the generator isn't in a selling mood or he's Mhmm. You know, it's not the right time of the year that they've got volume to sell or the price isn't attractive to them at that time. And that's where the traders can be useful to be there's always someone to buy and always someone to sell every day. But then, yeah, like I said, I'm probably biased.

Yeah. I know.

Well, you probably are biased, but I do agree with you. So, alright, Modo's become a trading house. We have post load of collateral as margin on the exchanges. We've raised a load of money.

We're ready to go. And then now we're ready to trade. What makes a good power trader? How do we how do we get how do we how do we win?

Yeah. That is another big question. And and and the answer to that question, again, has completely changed over the years. I must say, if I was a brand new power trader now, I don't think I'd be very good at it.

The skill set is completely different now to what it was, and that's mainly being driven by the amount of data and the technology that has come into the market in the past twenty five years. So when the new trading arrangements first went live in two thousand and one and you could you get the BMRS data, created a big dataset. Then in two thousand eleven, remit was introduced, which is the regulation where all generators of power have to notify the market of any changes or outages in the plant. And that created lots and lots more data.

And bit by bit, more and more data, there's more weather data now. There is data for whatever you want. There is an infinite amount of data. There's too much data.

So the challenge now the in the oldest, the challenge was there's not enough data. We can't see what's going on. Now in a way, there's too much data because if there's too much data, unless you organize it, catalog it, sort it, work out which data is the most useful data, and then visualize it in a very quick way so that you can implement trades very quickly on your reaction to new data coming through.

Unless you can do that effectively, you can't compete, and it is competitive.

So so, twenty years ago, everyone wanted more signal, and now they want less noise.

Yeah. So they They've got to figure out answer to your question, I would say, if I was advising you and you just left university and you said I wanna be a trader, what do I need to do?

I would say your best I did the best plan would be to become an analyst Mhmm.

So that you can learn and understand where all the data comes from, how to organize the data, how to understand the data, how to model the price, how to model plant behavior, how to how to predict the future. And if you understand that from a very, very detailed level, then you can use that to to predict the future.

But that's not the only angle. So you could be good at data. You could be good at coding. You could be good at all your analysis.

But I I've seen lots and lots of traders. I used to get heavily involved in the RWE graduate program. I was very involved with that from the very, very early days when I started on the coal trading desk.

And I've had many, many graduates and young analysts work work in my team. So I think I've got a good angle on trying to spot who is gonna be the successful traders of the future and is now more competitive than ever. The the skills required for the most successful trader, it's not dissimilar to the top professional athletes.

Mhmm.

So people who are completely driven, they are passionate about the market. They've got a really good attention to detail. They not get bored looking at loads of data and trying to work out what the answer is. They keep going and going and going.

They never give up. They wanna be the best. They wanna be the most accurate. It's having that drive, and and you can spot you can really kind of spot that Yeah.

Those drive.

People. Yeah.

And and, again, it's only the very best light in a you know, with a professional tennis player or a professional, hundred meter sprinter. It's the ones that dedicate the time. And some of the guys, they they don't even get a lunch they don't take the lunch break because they they do not wanna miss a thing in the market. You know, they it's their whole life. It's their bread and butter.

Wow. What what a great experience to come and work on one of these, desks. I gotta bring it up because, of course, you can buy stuff cheap and sell it high, but you can also end up losing money on trades. Right? This is the this is the risk there's a risk involved in this business.

It's much easier to lose money than it is to make money on a shoal. I was gonna ask you about that.

So in order to make money, you've gotta you gotta have some losers. Right? Because you gotta take some risk. And how do you guys make sure that you're always net positive?

You know, what what what what what's the game there? And it must be very tempting to for for traders to think, oh, I'll put more on. I'll put more on. Because we're I'm not gonna say it's a it's not it's not a casino because the house doesn't always win, and it's not random Mhmm.

Or there's some randomness in there.

How do you how do you as a business make sure that you're here tomorrow and here the next day and here the next day?

Well, apart from training and hiring and and bringing on the best traders that we can to ensure we've got the best success and having the best analyst to do the work that's needed to make ourselves succeed. There's very tight risk controls, and that'll be most of the companies that trade in have very, very strong risk control functions in their business, and that's any prudent operator of a trading company would have that. So there's different measurements, and different companies will use different measurements to say how much risk people are taking.

People will get questioned about why they're doing things.

If it starts to turn wrong, they can be be in a place where they can discuss it and work out what to do with their manager or with their colleagues, but they will also have limits in terms of volumetric limits as well.

So you wouldn't be allowed to keep going more and more hundreds more megawatts Yeah. On the book. That that just wouldn't be able to take place. And there's lots of checks and balances all put in place.

And techniques for that are are very, you know, very common and Well understood.

Standard these days. Yeah.

Okay. Good. As long as we as long as no one can bet the farm. Right?

That's that's Not at all.

No. Alright. I wanna come back to storage because this we are storage people. Right? So what are you guys doing in store the the what what DARE's doing is is growing fast. You're taking lots of new people, and you you you got into power a couple of years ago, and now you're expanding beyond that. What's the story there, and how does storage fit in?

Well, storage is a very attractive part of the renewable space for us because as we've talked about before, more storage is needed to prevent the to reduce the volatility between the, you know, the negative prices and the spiky price. The more storage we have, the better we can the more renewables we can build, the more wind we can build, the more so and so we can see there is a big gap in the market for storage.

Again, we wanted to use our skill set. You know, Dairies, as well as being a modern trading company, they're we are a technology company as well. We build and maintain all of our our own systems and technology, a very strong team there. And we felt that that with both of those skill sets, a great way for us to enter the renewables market will be to start with batteries and battery optimization. No doubt we will go a lot further into other parts of renewal space, but that's where our skill set lies, and that's where we can really bring in, you know, the advantages, I think.

So you're moving into the physical world in power.

Yeah. Which is a big step. And once once storage is the most I I don't know. I think it's very exciting from a trading perspective.

Yeah.

And then beyond that, bigger things, you know, wind portfolios and and all and all of that.

Sky's the limit.

Who is this?

The limit.

Cool. And so but if I got this right, you guys are you're an optimizer as well now. So you're optimizing physical assets.

Yeah. So we have our own optimization platform, which is being built by our tech team and and some of the analysts from my team.

And we think that we can really make a difference. We because we're a relatively small company and quite dynamic. We can move very quickly, and we can make, you know, bespoke front ends for different clients. We but we also we've got a good angle on the analysis. So we can show different types of analysis for whatever the client wants to see. You know, where is his income from in in each battery unit that we're optimizing, as much or as little information as people wanna see. We've got the flexibility within our system to be able to to do that.

And the proof's gonna be in the pudding. Right? So, but if I got this right, the competitive advantage of you guys is you market people through and through Yeah.

Rather than coming from the other angle. And that'll be interesting to see how that plays out.

I think you've covered it in your podcast before, and we've spoke to you before about the cannibalization of the ancillary services market. And we think that we we know that's happening already, and we think in the very not not too distant future, most of the income for battery assets will come from pure wholesale market trading.

And that's why it's crucial for asset owners to have a a company looking after their interests in those markets that really knows like, you know how hard it is. You've worked out how much data's needed, how much technology, fast technology, is needed to be involved and to be competitive and successful in those spot markets. So we're kind of future proofing our optimization offering.

Well, yeah. Absolutely. If we're gonna have, let's say, twenty, thirty gigawatts of batteries, I believe it'll be much higher. But, everyone tells me I need to stop saying that out loud, in the next couple of decades. Then, you know, the it's gonna be a it's gonna be a merchant led, market. And so the the winning optimizers will be merchant led, and it the the world of optimization is still very, very young. So it's really interesting to see how it's gonna play out.

I'm very aware that we've gone well over time here, but it's been a fantastic conversation. I just wanna ask you, we always give everyone the opportunity to plug something. So is there anything you wanna plug while you're on?

I think I've already plugged it. I think that the importance of the wholesale market in the battery optimization space Yep. Is a thing to plug. I think looking at purely ancillary services, there will be some ancillary services and they know that, you know, they're likely to change, but predominantly the commercial skill set I I think I'll tell you another way of phrasing it would be, if I had my own battery that I invested my money in and I was to trust someone to optimize that or to bring in revenues from that in the market, I would want someone with the best traders, and we've talked about this.

Someone who is passionate about the market, who has the attention to detail, who understands every little bit of the market, the fundamentals, the flows to other countries, the LNG market around the world. Every single piece of the jigsaw, you want someone that is on it all day long. They're the they're gonna bring in the best amount of money for you in the future. Right.

Well, you heard it here first. Right?

Okay. Everybody, we've just run out of time. So, Julie, I wanna say a massive thank you for coming on.

Thank you.

We could do loads more episodes around, cold and physical and all sorts of stuff, but maybe something for the future. But thank you very much. And for those listening, please do like, subscribe, hit all the good buttons.

It means I get brownie points at MODO. Thanks very much.

Thank you for listening to Transmission, a MODO Energy podcast.

Transmission delivers conversations from industry leaders and experts exploring energy markets and the operations and technologies related to grid scale battery energy storage. Check out our other episodes by searching transmission wherever you get your podcasts.

Check out the Energy Academy, our video crash course on how markets in Great Britain and ERCOT work, or head to motoenergy dot com to see our written res Thank you for listening to Transmission, a Moto Energy podcast.

Transmission delivers conversations from industry leaders and experts exploring energy markets and the operations and technologies related to grid scale battery energy storage. Check out our other episodes by searching transmission wherever you get your podcasts.

Check out the Energy Academy, our video crash course on how markets in Great Britain and ERCOT work, or head to motoenergy dot com to see our written