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Green is good for power traders chasing US$430b market
[LONDON] The itch is back for Paul Mead. After almost a decade investing in vineyards and startups in his native New Zealand, the former Barclays and Enron trader wants to return to the power market.
What's attracting Mr Mead is the realisation that efforts to slow global warming through renewable energy and electrification are creating new ways to make money in Europe's US$430 billion power market. Stricter climate targets are spurring investments in wind turbines, solar panels and battery systems, with Bloomberg Intelligence estimating the market may almost double in size in the next 10 years.
With the European Union (EU), the UK and other governments increasingly turning their backs on fossil fuels, companies steeped in that business are looking over the horizon and seeing a new age of electricity. Royal Dutch Shell is on a hiring spree as it plans to spend as much as US$3 billion a year on its new-energies division, and Vitol Group is building out its trading desk. More power traders have changed jobs in 2020 than in the past three years combined, according to Oxwich Search.
"For those companies that get the right people on board, take advantage of cheap money and position wisely for the future, there will be real gains to be made," said Mr Mead, 52, who is in talks about a new job. "Easy Street can go onto the back burner as the opportunity is far too compelling to not be involved."
The major energy companies are adding power plants, retail customers and car-charging networks, and need more staff to help manage those assets. Electricity is a volatile commodity, and traders will try to profit from increasing price swings caused by intermittent wind and solar output.
The vast majority of power traders earn six-figure salaries, recruiters say. For the cream of the crop, guaranteed compensation for changing jobs is between US$2 million and US$3 million. That still trails the salaries of the best oil traders, but recruiters say the gap likely will narrow in coming years as the now-niche business goes mainstream and attracts more talent.
"We're seeing unprecedented interest in the market and power traders," said Jonathan Funnell, head of gas, power and renewables at Proco Commodities, a search firm in London. "Those that are carbon heavy have realised they need to be involved in electricity and renewables."
About 8,744 terawatt-hours changed hands in the European market last year, according to industry consultant Prospex Research. That could increase to more than 16,000 terawatt-hours by 2030, according to Elchin Mammadov, a senior utilities analyst for Bloomberg Intelligence. The value of the market could jump to more than 630 billion euros (S$1.01 trillion) by then, he said.
What sets power traders apart from peers in oil, metals or agriculture is the sheer amount of data they need to track - which fossil-fuel plants are running, ever changing demand, what the technical charts are showing, weather reports and the overall power-generation mix. Sometimes they operate in several markets.
The usual degrees in mathematics, finance, economics or engineering come in handy, but firms increasingly are searching for candidates with programming skills, including in Python. Denmark's second-biggest city, Aarhus, has become a hub for short-term trading where companies choose students straight out of university and train them on the job.
"Power markets are so complex that in order to make sense of it you have to build big machines," said Stefan Wieler, head of energy market analysis at Swiss utility Axpo Holding and a former Goldman Sachs Group oil analyst. "It's very data-intensive, it's very coding-intensive, it takes time."
The traders' attention was tested on a calm Sept 15, when intraday prices soared to levels among the highest on record. What began with a warning from Britain's network manager that supplies were running low ripped through Germany, the Benelux market and Denmark. Prices rocketed as wind parks, the backbone in the fight against global warming, almost came to a standstill. Oil-fired plants belching black smoke were needed to secure supplies.
As UK wind output plunged more than two-thirds within hours, prices jumped 10-fold in Britain and surged 20 times in Germany. And there have been more warnings since.
"Wind is the one factor that really moves the market all the time, and it's always on our screens," said Bo Palmgren, chief operating officer at MFT Energy in Aarhus. The company recently opened offices in the US, Turkey and Singapore as the renewables market goes global.
Trading also is at the heart of London-based BP's pledge to move away from fossil fuels without sacrificing profits. Renewable-energy projects typically give returns of 5 to 6 per cent, and traders have on average boosted the company's returns by 2 per cent, chief executive officer (CEO) Bernard Looney said.
BP, which plans to cut 10,000 jobs amid the slump in oil prices, will expand its electricity trading during the next five years, increasing volume annually by about 40 per cent to 350 terawatt-hours - or about as much as the UK's annual consumption.
Like BP, Shell is undergoing a major restructuring which will also result in thousands of job losses. Power is a key element in its short-term strategy. The Anglo-Dutch major, which in 2018 bought a UK electricity provider, plans to invest "quite heavily" in power during the next decade, CEO Ben van Beurden, said. The company first will hire short-term traders for the continental markets and then expand "a lot more than that" within the next year or so, David Wells, vice-president at Shell Energy Europe, said in an interview this month.
This is all a long way from the early days of Mr Mead's career. Oil trading got going in the 1970s, but it wasn't until two decades later that power markets started evolving. The UK and Nordic markets were first to open up. Germany, now the biggest market, followed later. Before its notorious bankruptcy in 2001, Enron lobbied hard for liberalization.
At the start, there were only a few trades a week.
"We used to call it the 'Hotel California', Mr Mead said. "You could check in, but it could be hard to check out."
He recalls that desks in those early days were an eclectic mix of number crunchers and foreign-language speakers as local market players rarely spoke English. Trading systems were mostly built in Microsoft Excel, with brokers working the phones.
Now, screen trading dominates, and thousands of deals are done each day.
And in the latest sign of how renewable energy is penetrating not just markets but the whole economy, UK Prime Minister Boris Johnson this month announced a plan to tackle climate change through creating or supporting as many as 250,000 jobs. It follows the EU's flagship Green Deal strategy from last year designed to make Europe the world's first climate-neutral continent by mid-century.
"Climate change and an electric future are reordering the industry," Mr Mead said. "The next 10 years suggest massive change."