Basics of RT Power Trading
I am a student so looking to get a send of the role. I understand that RT traders essentially balance our generation and load while ensuring system frequency and do so in time periods of 15 minutes according to whatever LMPs / settlement prices show up (at least in ERCOT). However, I feel I am getting I am getting too bogged down in the details without understanding the broadest questions so I wanted to ask some elementary questions first:
How does a RT power trader actually make money when physically moving power?
What would be the information someone at this role would closely look at besides weather patterns / seasonal load patterns?
How does RT trading look like at a shop like EDF versus NRG?
I understand these are basic questions but am struggling so any direction would be great so I can dig in further.
RT traders make money by taking advantage of spreads between points. I suggest going to ISO websites (ERCOT, PJM, ISO-NE, etc) and taking the 101 trainings if you are really interested. Most ISOs operate similarly, so that will give you the basics on price formation, load forecasting, dispatching etc.
Each shop will have its own idiosyncracies on what they do and what's allowed, but the biggest differences will be different assets to manage and risk tolerances. Otherwise, RT trading is pretty similar regardless of where you are.
Bit of an old thread but figured I’d throw in my two cents…I trade the west, so less familiar with how somewhere like ERCOT works in real time, but in general you can make money one of two ways in real time.
The first way is ‘arbitrage’…company A calls you with a $20 bid for power at location x and you call around and find company B willing to sell to you at $15 at location x. Or maybe they deliver at location y and your transmission cost for y to x is only $2. This isn’t as common in the west in my experience but think it happens some in the east. I put arbitrage in quotes because there is still some risk involved as generation can be curtailed/transmission can get cut and depending on how much risk you assumed playing middle man you can be left holding the bag.
The second way is taking some kind of floating price risk. For example, company A calls with a $50 bid for HE20. I can’t find another counterparty that is cheaper, but I can export out of California and get an unknown price. I look at what is going on in California and based on whatever factors I’m seeing, I think the price will print less than $50, so I buy from California (floating price) and sell to co. A (fixed price). You could also take floating v floating price risk and export out of somewhere in PJM and import to somewhere in MISO and try to capture spread there.
Regarding the difference in RT at a trade shop v more of a generator/utility, the latter is going to be more operational and more risk averse. They won’t be concerned about real time’s PnL and are going to be mostly dispatching assets and covering any positions that come up in real time…I.e a power plant that sold day ahead trips offline and now real time has to go out and find new sources of that power, or load comes in high so they need to go out to the market and buy more. Much more operational, probably more communication with ISOs/BAs and power plants. Trade shop is generally going to do more “trading” and will be more likely to make a market, but depending on how the shop is set it up it could be very operational and essentially just babysitting whatever the day ahead traders put on.
so the second example is kind of like an IR swap? this is pretty cool read, going to do the modules on the websites mentioned above. Always thought the electricity space was interesting
On a high level, this is a very good explanation of what we do in RT.
To answer your questions as bluntly as can be:
- we make money through arbitration between ISO's (or counterparties)
- Weather/seasonality play a huge factor; but other things to consider are the types of generation currently serving that load, what land forecasts are, how they compare to Day-Ahead forecasts, etc. Essentially in RT we can find arbitration between what the DA forecasts had shown, to what is actually going on (think of as if your confidence interval for how much it will rain tomorrow night at 6pm decreases, the closer you get to that time)
- In power trading you can basically break firms up into two buckets; Bucket A are prop shops (entirely spec players that operate both RT and DA trading, but own no assets (Transmission rights, generating units, loads, etc.) they largely operate between two ISO's (ISO-NE and ISO-NY), they'll also operate heavily in CRR/FTR which you can read about here. Bucket B are mainly utilities, some banks, and other shops which own any type of TX rights, generators, loads... these will have a lot of variety in terms of competencies of the traders because a utility will operate to lower costs for their load customers and not for profits, whereas a bank would operate solely for it's bottom line. That's not to say that these shops don't also do spec trading in RT, it's just not their main business model.
It is a bit of a niche industry still, so it's understandable for a junior to not have a full understanding of the role, so don't expect the interviewer to press you for not knowing a technicality of the job.
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