With almost 20 years’ experience in the European electricity markets, Engie is now aiming to play a leading role in the burgeoning power markets of Asia – not only by offering its products and services to market participants, but also by sharing its risk management expertise.
“We are a global utility with proven trading experience so we understand the dynamics and challenges of each market design at every phase of liberalisation,” says Engie’s head of power and gas trading in Asia-Pacific, Matthias Soreau. “Engie adapted to the market liberalisation in Europe, so we know what Asian players [in markets such as Singapore and Japan] are experiencing right now. We aim to provide solutions to a wide variety of players such as retailers, hedge funds and local utilities.”
This approach paid off in 2018, according to Soreau, who says Engie’s Asian power desk has seen its best year so far with volumes projected to reach 12 terawatt hours (TWh) in 2018, up from nine TWh last year. “Being a market-maker in Singapore power futures has opened the door to more volumes and we managed to extend our positions in Australia and New Zealand as well this year. As an active market-maker, our risk management capabilities are recognised by the market,” he says, explaining that local retailers have been approaching Engie to tap its expertise, something the company expects will continue to generate customer flow.
Power markets across Asia are at very different stages of development. While Australia has a well-established power market (in which Engie has been active since 2015) for example, others have been liberalised more recently, such as Singapore, where the futures market was established in 2015, and Japan, where retail power markets were liberalised in 2016. This has enabled market participants – often local retailers with no prior experience – to start exploring the idea of trading and discover the benefits of risk management.
Engie adapted to the market liberalisation in Europe, so we know what Asian players [in markets such as Singapore and Japan] are experiencing right now
Matthias Soreau, Engie
Following this year’s restructure of Singapore’s incentivisation scheme for market-makers participating in its Electricity Futures Market, Engie was chosen by the Energy Market Authority to be one of six market-makers in the new Futures Incentive Scheme. The EMA issued a call for market-makers in March 2018 to apply to participate in the auctions for the scheme, which run from August 1, 2018 to January 31, 2020.
“The market-making role is challenging,” Soreau says. “It is a continuous market and we need to be active for 80% of the time each month, so it is implied that [there is a need for] some automation of trading tools and a certain level of security in terms of safety checks. It’s not a manual story, there must be a real commitment to develop the right systems and processes.”
He adds the utility was able to add value by actively bidding into the market when prices spiked in early October 2018 from $116 per megawatt hour (/MWh) to $180/MWh, surprising other market participants. “It was a significant increase and we could see the nervousness of retailers when it occurred. We were committed to being extremely present on the spike and to show the market that there is always a price.” The experience put to the test the effort Engie had put into researching and modelling market risk as part of its bid to become an official market-maker, Soreau adds.
In addition to a trader exclusively for the Singapore market, Engie also has traders covering each of the Australian and New Zealand power markets, and it is also exploring China emissions and power markets. This is where the company expects to grow its Asian power business next. “Engie is active in China; we have an office in Shanghai and are planning to start trading offshore from Singapore,” says Jules Dufournier, chief operating officer of Global Energy Management, Engie, in Asia-Pacific. “Our China trader is focused on emissions trading right now, but we are also actively looking to trade China power in the near future.”
Engie plans to continue to use its global expertise to deepen its relationships and further tailor its risk management and trading offerings to the expanding needs of power market participants in Asia. After China, the next step for the company is likely to be Japan, says Soreau, where he has his sights set on the country’s volatile spot power market. “When the retail market opened in April 2016, we saw about 300 retailers enter with experience in other markets, such as internet or mobile phones. So they already have a portfolio of customers but are not very familiar with the specifics of the physical power markets,” he says. “We think we can provide [them with] a wide spectrum of risk management solutions.”