The Europeans are coming for US power markets

Ørsted is setting up a trading office in Chicago which will be trading power in the wholesale markets.
Ørsted is setting up a trading office in Chicago which will be trading power in the wholesale markets.

By Lars Paulsson, Jesper Starn and Christopher Martin, Bloomberg

Prodded by their own governments into slashing emissions and getting out of coal, European companies are a step ahead of their U.S. counter parts. Orsted A/S, the world’s biggest offshore wind developer, in October opened an office in Chicago, while Danske Commodities A/S set up a subsidiary in Connecticut in the summer. Oil trader Trafigura Group Ltd. is also expanding into electricity.

The European and U.S. markets are the most mature in the world and transparency has increased greatly in the past decade. Millions of data points on supply and demand, from sunshine in Spain to Texan wind levels, are fed into sophisticated software that more and more frequently also trade on its own. But the penetration of renewables into the grid has has gone further in Europe.

“There’s definitely a trend here,” said Peter Henry, managing director at HW Anderson Ltd. in New York, who has hired for utilities, banks and trading houses for more than a decade. “There are opportunities for them to apply similar strategies that have worked in Europe in the past.”

InCommodities A/S, a Danish firm started just two years ago, is planning a U.S. office in the first half of next year. Veteran trader Jeppe Hojgaard was appointed U.S. head in September and its first hire will join in January. The team will be a mix of local and existing staff from its office in Aarhus, a European hub for short-term trading driven mainly by solar and wind.

“We’re seeing strong growth of renewables in the U.S.,” Jesper Johanson, chief executive officer of InCommodities, said in an interview. “It’s a supply mix that we’ve been good at working with in Europe.”

Some of the biggest trading houses are also expanding. Trafigura this autumn started a power and renewables desk focusing on European and U.S. power and plans to invest in green generation plants. Mercuria Energy Group Ltd. last year bought Noble Group Ltd.’s U.S. power and gas operations. From Houston, the company has expanded its presence in the wholesale market and is now trading electricity coast to coast, according to its website.

While the U.S. and European power sectors are much smaller than the biggest commodity markets, Americans spent more than $400 billion on electricity last year. Trading in Europe amounted to 459 billion euros ($506 billion) in 2018, but there’s been little growth since 2014, according industry consultant Prospex Research Ltd.

Other developments:

  • Dutch firm Priogen Holding BV hired Chris Ray in Houston as a senior power trader from Twin Eagle Resource Management LLC. He has almost two decades of experience in U.S. electricity markets, according to his LinkedIn profile.
  • Swiss utility Axpo Holding AG will “continue to gradually expand its activities,” in U.S. markets after setting up its first office outside Europe in New York in 2016, a spokesman said.
  • Engie SA, the French utility which plans to add about one gigawatt of renewable energy in North America every year, is also hiring. One position in Houston was posted on Nov. 7. “Where we want to develop renewables, we’ll need more,” Gwenaelle Avice-Huet, chief executive officer of its North America arm, said in an interview.

New entrants could do worse than take a leaf out of EDF Trading Ltd.’s book. The division of France’s national utility has been active in the U.S. since buying a Lehman Brothers Holdings Inc. unit at the height of the last financial crisis.

Diversifying across continents and markets helped generate a profit of almost 3 billion euros in the past five years, according to financial reports. Europe and Asia can learn from the U.S. market too, said Philipp Bussenschutt, EDFT’s chief commercial officer.

“There has been a great deal of technological innovations in the U.S. market over the past ten years, first with shale, then LNG exports and now with integrated renewable product offerings,” he said. “We have to be aware of what is happening all around the world.”

Uniper SE’s commodity arm has also been active in the U.S. for many years. Part of the attraction is to help the many private equity firms who invested in U.S. power plants to sell their production to municipalities, said Marco de Jong, director of gas trading operations and in charge the North American division.

The company has increased staff to about 60 in mainly Chicago and Houston, from about 30 only 18 months ago. Further expansion is planned, especially in short-term trading, he said. The trading unit of Uniper’s German peer, RWE AG, is also trading U.S. power from its headquarter in Essen.

Also in Chicago, Orsted has so far hired one local trader for its new office. It’s also a city where Lincoln Clean Energy LLC, the renewable developer it bought for $580 million a year ago, is based. Orsted plans to boost staff to 10 by next year, Morten Buchgreitz, head of markets and bioenergy, said in an interview. The firm has started trading the ERCOT market in Texas, where Lincoln has wind parks.

“We have a long experience of what happens to power market prices when you introduce a lot of renewable capacity with low marginal cost,” he said. “But it is also a different kind of market so we need people with local knowledge.”

Increasing imports of liquefied natural gas from the U.S. to Europe is also driving expansions, said Jamie Tranter, an executive consultant at recruiting firm Proco Commodities Ltd. in New York. Gas is one of the main price drivers for power in Europe.

“Any European utility who is buying U.S. LNG and is exposed to U.S. pricing will look to move here, he said.

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