Trading Power, Carbon & NGOs

Good evening,

Long time passive WSO lurker here that has decided to finally register and engage on the forums.

I finished my postgraduate degree towards the end of last year and after several applications and interviews I managed to land a job as a junior trader at a power utility company. I have been working there for a couple of months and I am about to open my own book, where I will focus on european power markets, NGOs, and the carbon market. I will be trading financial products, not the physical side of the business.

My first question is whether european power, NGOs, and carbon are worth specializing in. I have read numerous discussions on the forum regarding energy trading, specifically oil and gas, and therefore I am wondering if those commodities are more exciting products to trade and if it would be possible to potentially move over to those markets in the future. Also, is the renumeration considerably higher for those commodities in general?

Secondly, I would love to know what you guys think about the shift towards more quantitative implementations in commodity trading. I'm struggling to find positions available where prop trading the beforementioned commodities is the primary role, and of those I have found there does not seem to be the same quantitative requirements as opposed to more quantitative trading positions in equities. The reason I'm asking is that I have access to an overwhelming amount of data at work (as I imagine most commodity traders do) which I'm analysing frequently, however many of the other traders I have spoken to don't have advanced programming skills and what not. Is this normal?

Lastly, where do the most successful power/carbon/gas/oil traders go? Do they work for big utility companies or perhaps at the 'Majors'? Are there many funds that specialize in european power and carbon?

Sorry for the lengthy post. If you have the time to answer my questions or perhaps have a question for me, please feel free to reach out and I'll answer whenever I'm available.

Cheers! :)

Comments (8)

Jan 11, 2022 - 9:43pm

First off, wont lie man no idea an NGO is or stands for but I assume its to do with power/carbon. That being the case you are entering one of the hottest sectors in all of trading, truly a quick google search can solve that for you. 
Quantitative skills, you need to be mindful we are in an era "energy transition" and with that comes "skills transition". You cannot remove senoir people who hold key fundamental information for those with superior skillset right away. So instead most analytical roles and pretty all vendors are moving to a quantitative tool kit. One shop in particular, analytics team builds models and outsources all database/higher end coding to a coding firm.

A bit out of scope here (dont trade europe). But my sense is europe is not liquid and fully "unregulated" to have full on FTR style trading all over. That said I think europe moved to closer "with-in month" trading a lot faster than the US simply due to they invested bigly in renewables way faster. So the transition will continue.

Funds/independent hiring like crazy for Euro Power dudes.

Missed a part of you question but you are going to learn in particular in europe, you could have 15 million data sets and sometimes stuff wont make sense till you find a guy who got the info from a guy from a guy. Just way it is majority of these assets are optimized and owned by massive congolmerates who do not like to share info. An example is how does a plant decide their hedge ratio, how serious they take their 2week out wind forecast, some of these places may know their plant trips more/less etc.

Jan 12, 2022 - 1:46am

Thank you for your well thought out respond, I appreciate it.

Come to think of it 'NGOs' are extremely niche and the abbreviation might be something my team uses as it didn't return any results on Google. My apologies.

I definitely see that there is a lot of hype and investment into renewables, however I have not seen much about the trading aspect of it. Perhaps it's lagging slightly in Europe? As Europe moves towards an energy mix that is dominated by renewables there is a greater stochastic element to the forecasting. This should force market participants to integrate more quantitative models?

Also is it worth spending a considerable amount of time learning the technical aspects of meteorology, as the weather forecasting element is only becoming more relevant.

Do you have any comparable information regarding power/carbon vs metals vs oil/gas remuneration?

Most Helpful
Jan 12, 2022 - 7:08am

Energy guys are getting paid much more for the time being. Look up the HC insider podcast.

Guess this where mainstream is protected somewhat and you need to be in the know to find some information. Basically coming out of the pandemic, Europe made a commitment to take "EU Carbon" pricing seriously this has led to EUA to be one of the most talked about topics for 2021 additionally the developing world (Asia) came out of the pandemic gangbusters so Europe went into a full out "energy crisis" in early 2021 summer and then UK power broke in late Q3 and since then it is in a prolonged energy crisis. The energy mix is has been changed by renewables over last 3-5 years massively as retirements from coal/nuke took place. 

Yes majority of good power traders have a sense of weather and the major meteorological patterns/analogs and teleconnections. There is research being done right now on "wind speed" and "wind speed vs wind chill". Beyond that, to understand the quant shift in power need to look up things like duck curve, lack of new power lines/congestion etc..I cannot really get into that here ha.

Truly be lucky you have a very strong skillset, coming into one of the key markets worldwide right now where the stuff youll see in short-term here one may never see again just an a crazy environment to learn.

Lastly, you can get on linkedin and follow like ICIS guys and see that every morning european power/gas is basically spoken all over. Again majority of mainstream is not seeing this as the EU governments are secretly bailing out their people for now...that all I said I am on the side of "transition" and think EU electorate as a whole is willing to pay for it "crisis or no crisis".

Jan 12, 2022 - 7:46am

Again, thank you for taking the time to answer in such a detailed manner. I will definately give the HC insider podcast a listen.

Yes, that is the impression I have atm. There is a lot of general information to be found, but not at a more granular level. Yes the german adoption of renewables and downscaling of more traditional power plants definately underlines the general european green shift. Although, they are definately limited by their grids and power lines as you made reference to. I am currently working on an "optimization" between european activity emitting emissions and the demand for carbon credits, which is incredibly interesting.

I can definately feel the effects of the current energy situation on a daily basis as the closest I get to "normality" regarding power, gas and carbon prices is through the analysis of historical data. I just imagine the energy landscape being completely dominated by algorithms that attempt to predict the  weather as we continually adopt power generating practices that hinge on weather outcomes.

That research sounds interesting and I will definately try to read up on it (if its available that is) and I have spent a lot of time looking at the power systems, which do look like they need to expand and update as you alluded to :)

Thanks for the tip (ICIS on linkedin)!

Best regards

Jan 12, 2022 - 11:37pm

My energy bill for December, over November, was 250%, with 1 week less of consumption because I was away.

The fact that I ´can´afford it, doesn´t mean everyone can. I can also see the impact on business and supply chain. When clients complain, I make sure they perfectly understand this is the fault of the European Union, Greta Thunberg and the green transition. The same goes for corporate meetings, where fads like sustainability weren´t questioned, now see middle-managers gathering the courage to tell upper management this is, ironically, not economically sustainable at all.

The only thing that´s keeping the tide, is that voters in European countries have been for now successfully demoralized and terrorized by propaganda about the Wuhan coronavirus. I wholeheartedly support scrapping the green transition in its entirety, and, if anything, switch to a skin in the game system: those who want it, should pay for it.

Never discuss with idiots, first they drag you at their level, then they beat you with experience.

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Jan 13, 2022 - 3:36pm

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