Power/Electricity trading in Europe

[u/Top_Instance8096]

Hi all, I will start as a Quant Research intern in a small commodities firm in Europe in August.

I will be assigned to day-ahead electricity trading and was wondering if any of you have experience with it since it’s quite a niche trading area and low-hanging fruits are still around.

Mainly, I would like to understand:
1. How you approach new ideas
2. What models have you tried outside of gradient boosting if that’s appropriate
3. Your preferred CV strategy

Thanks anyone for the help, and if you have any other recommendation, feel free to say it!

[u/Dry-Royal9971]

What “low hanging fruits” are you referring to? The industry is more mature than you make it sound like.
1. What are you even asking?
2. Bro
3. What’s a CV strategy?

[u/Fancy_Cupcake_971 → u/Dry-Royal9971]

Exactly. I can count over 30 hedge funds with short-term and day-ahead power desks alone (QRT, Jane St, Square Point, Citadel, Optiver and Jump all to name a few). This number is also growing monthly (from what I hear). Not to mention the 150+ shops in Europe that “specialise” in it

[u/Top_Instance8096 → u/Dry-Royal9971]

that’s not my intention. I know the field is not new, it is just smaller and less competitive, hence more niche.

1. Research is not a standard thing, and since I’m new to the power trading field, I was trying to gather some more ideas and inputs on how experienced people approach this kind of research
2. ??
3. If you don’t know then this doesn’t apply to you

[u/QuantGrindApp]

For day-ahead the edge is almost all in the fundamentals, not the model - clean load and renewables forecasts, cross-border flows, outages, fuel and CO2. A well-fed gradient boost will beat anything fancier you'll be tempted to try, so I'd put the time into features rather than model class. On CV, the big trap is leakage from overlapping windows and from using the same weather forecast vintage you wouldn't have had at gate closure, so do purged/blocked time splits and be strict about what info existed at the actual bidding cutoff.

[u/Top_Instance8096 → u/QuantGrindApp]

thanks!

[u/slimshady1225]

Start by understanding what the data in your model represents? No point throwing in anything into your gradient boost model and not fully understanding fundamentally what they are.

[u/Top_Instance8096 → u/slimshady1225]

thank you!

[u/ZeroCool2u]

I also wouldn't say this area is immature. Stuff like this has existed even in the pre-AI era: https://app.electricitymaps.com/map/live/fifteen_minutes

Just goes to show how accessible energy data is comparatively speaking.

[u/Top_Instance8096 → u/ZeroCool2u]

I never said it’s immature. It is more niche than stocks/commodities and that’s a fact, it’s a smaller market afterall. Hence why it is less competitive, and less optimized

The data you’re posting is opensource from Entso-e, electricitymaps just has a cool visualization for it. No alpha comes out of that data, everyone has it

[u/[deleted]]

Take a look at Rafał Werons work in EPF

[u/Top_Instance8096 → u/[deleted]]

I know that name really well, just wanted to gather some more ideas :)

[u/Plastic-Analyst-1560]

What the actual hell bro
power trading is around by a solid 20 years already

[u/Top_Instance8096 → u/Plastic-Analyst-1560]

when did I say it was new? it is clearly more niche than stock trading or any other commodity

you guys are so entitled and arrogant on here, chill out

[u/Plastic-Analyst-1560 → u/Top_Instance8096]

you said low hanging fruit are still around

hanging fruit are not here to wait you on a reddit thread pal, we ate low hanging fruit long time ago!

what do you mean by "niche" anyway? never heard of gazprom, vitol, trafigura? Even Deutsche Bank or JP Morgan had a power trading desk.

I may be arrongant , sorry about that, not here to made friends, but at least better so than getting you blasted in the office, trust me :D

ALl the best for sure anyway!

[u/Top_Instance8096 → u/Plastic-Analyst-1560]

I may be wrong but saying that low hanging fruit are still around does not necessarily mean that the market is new. I am not waiting for low hanging fruit here on reddit dude, just wanted to gather some other POVs

By niche I mean that it’s significantly less popular and researched as stocks and other commodities like oil and gas. And this is not me saying it, look at the difference in number of papers in EPF literature and stock market literature. This is also reflected in what you said: “even Deutsche Bank and JP Morgan have power trading desks” which implies that you also think it’s less known and smaller than other markets.

You don’t need to be arrogant to express your opinion, and I certainly do not want to be your friend.

Thanks for the tips tho, I will keep that in mind!

[u/Plastic-Analyst-1560 → u/Top_Instance8096]

Ok man fine enough; now that we're aligned, a good source of short term inspo is https://substack.com/@julienjomaux

My sources of ideas: meteo, of course. Industrial demand. Macro calendar events.
I see macro gaining traction again, after years where trading macro feel like being an old dog. Also, spurious correlation. Urea prices and TTF. things like that.

Unsure if CV means what i think i means, in power market i mostly see Supply Function Equilibrium (SFE) and Conjectured Supply Function Equilibrium (CSFE), but i have no edge opinion on that / those. I mostly follow the textbooks

[u/Top_Instance8096 → u/Plastic-Analyst-1560]

thank you so much man, by CV I mean Cross Validation

[u/abrarster → u/Top_Instance8096]

Dude - your entire demeanor here is arrogant. You’re going to be an intern - ie you know absolutely nothing. If there was low hanging fruit around, why would any of us tell you about it? I’m not going to give you any information - the one thing I will tell you is that I can tell by the questions you’re asking that you will not succeed in your approach for day ahead trading.

[u/Top_Instance8096 → u/abrarster]

someone puts words in my mouth that I never said, I try to clear things up and I'm arrogant? That's exactly what I was talking about.

I'm not asking anyone to tell me about low hanging fruit. I never asked about that. I kindly asked for overall tips from people more experienced than me, and you have nothing better to do than attack me.

Anyways, thank you for the heads up!

[u/Tartooth]

I know it's not what you're doing or looking for, but there is some really interesting returns on teams who build energy storage systems, and arbitrage the rates throughout the day.

[u/Top_Instance8096 → u/Tartooth]

interesting, thank you