Your expert for questions
Daniele Spinella
Senior Manager at PwC Germany
Tel: +49 1515 5461867
Email
Over the past five years, energy markets have experienced significant changes driven by the increasing penetration of renewable energy sources, the shift in regulation and technological advancements. The transition from traditional grey assets to a sustainable energy mix has redefined the energy landscape. This shift has reduced base load generation capacity, introducing complexities in balancing the grid and managing renewable energy variability. The increased market volatility has attracted diverse participants, including proprietary trading firms and hedge funds, who leverage advanced trading strategies to exploit market opportunities. Robust risk management frameworks and advanced algorithmic trading solutions are essential for navigating this dynamic environment, optimizing trading strategies, and ensuring efficient execution. The evolving regulatory landscape, including REMIT II and the AI Act, further shapes market dynamics, necessitating compliance and fostering innovation.
In the white paper “Future-Proofing Energy trading: The new Algorithmic Trading Framework”, PwC experts shed light on the transformative potential of advanced algorithmic trading frameworks, addressing the complexities of market dynamics, regulatory compliance, and risk management in the evolving European energy markets
“As energy markets continue to evolve, firms that seamlessly integrate algorithmic execution solutions into their IT architecture and risk management frameworks will be strategically poised to navigate market complexities and capitalize on emerging opportunities with greater efficiency and profitability.”
The evolving energy market landscape necessitates a thorough understanding of new market dynamics, recent regulatory amendments, and current IT trends to manage risks and enhance profitability. Advanced algorithmic trading systems, incorporating machine learning and big data analytics, are essential for identifying and exploiting market inefficiencies, optimizing trading strategies, and ensuring efficient execution. The new risk and trading framework emphasizes the importance of structured risk management processes, including risk identification, quantification, analysis, steering, and monitoring. This approach ensures that market participants can navigate the complexities of price volatility, liquidity risks, and operational challenges while maintaining market integrity and transparency.
The integration of advanced technologies within the overall IT architecture is paramount for meeting regulatory requirements and achieving a competitive edge in the short-term power trading market. Scalable data analytics infrastructures and machine learning models have become indispensable tools for developing adaptive algorithmic trading solutions that can respond swiftly to market changes. These technologies enable the optimization of trading and execution strategies, enhancing both efficiency and accuracy. Cloud infrastructure supports real-time processing capabilities, allowing traders to handle large datasets and perform complex calculations without the limitations of traditional on-premises systems. This integration ensures that all relevant data is readily accessible and can be analyzed in real-time, enabling dynamic risk management and informed decision-making.
Regulatory reforms such as REMIT II and the AI Act are reshaping the commodity trading landscape, requiring robust control mechanisms for compliance and profitability. The European power market has faced disruptions from events like Brexit, the COVID-19 pandemic, and the Ukraine crisis, introducing volatility and creating both risks and opportunities. The increasing integration of renewable energy sources mandates more sophisticated bidding and trading strategies, making advanced algorithmic trading platforms essential.
Recent changes under REMIT II specifically addressed algorithmic trading, requiring robust systems and risk controls to protect against market manipulation and disruption. By aligning with MiFID II, REMIT II mandates rigorous frameworks for trading algorithms, promoting a fair, transparent, and stable market environment.
“The structural changes in energy production and the new regulatory requirements have fundamentally altered market dynamics. Advanced risk management frameworks and automated trading capabilities are essential to effectively operate in the market and to meet the new challenges.”
Daniele Spinella,Senior Manager at PwC GermanyAnalysis: Future-Proofing Energy trading: The new Algorithmic Trading Framework
Contact our experts
PwC analysis on the role of battery energy storage systems (BESS): How battery storage can increase grid stability and efficiency in the European energy market.
The energy transition, regulatory requirements and digitisation pose new challenges for the industry.
The era of quantum computing is here. PwC will help you to explore the quantum potential and leverage this technology for your business.
Everything on the current status of the energy transition. Are we on schedule? Where do politics and business need to improve? What investments are still needed to achieve net zero?
