The struggle experienced by some electronic trading systems in the face of stiff competition from IntercontinentalExchange, EnronOnline, TradeSpark and other systems isn’t stopping E-lecTrade from launching its own power trading system this summer. The system is unique, however, in its effort to provide multiple structured power transaction types and risk management services real time and on an anonymous basis.
“It’s easy to think of our system as another platform,” said Chief Strategy Officer Gary Jeung. “But the fundamental product and objectives are very different. Our product focuses actually on structured energy and the parties that are actually trying to serve a specific need. It could be a generator looking to sell to aggregators or any type of utility looking to buy to meet a business need. The other exchanges are basic commodity exchanges with multiple standardized products.” With E-lecTrade every transaction is different.
The system recently underwent beta testing with 17 energy companies over a six-month period. Over 6.9 million MWh were traded in the simulation with a total contract value of $518 million — $276 million for E-lecTrade’s “ShapedPower” deals, or packaged forward contracts, another $241 million for standard power and $1.7 million for transmission contracts.
Among the organizations participating in the beta test were electric utilities, generators, competitive retail energy providers and independent power producers. When the E-lecTrade “ShapedPower” marketplace goes “live,” the company said it expects to have up to 20 participants from the following electricity regions: PJM (Pennsylvania, New Jersey and Maryland), NYPool (the New York Power Pool) and NEPool (the New England Power Pool). Included among the companies that participated in the six-week beta test are AES NewEnergy, CH Energy Group, GPU Inc., PPL EnergyPlus, and “virtually all of the other major electric utilities in those regions.”
E-lecTrade’s structured products are customized “shapes” of electric power for delivery in future days or future years that enable power providers to supply customers with electricity for peak loads and seasonal demand.
“The key value of E-lecTrade’s contribution is that electricity-industry-savvy people have developed and are about to launch a much-needed, truly anonymous, neutral structuring desk,” said David Selkregg, pricing manager at PPL EnergyPlus LLC. “This has been long overdue, and we are pleased with the depth of functionality. And while not every participant will use E-lecTrade’s portfolio management and optimization capabilities, we found that consolidating these aspects of the service with E-lecTrade’s transaction tools is likely to prove beneficial to us over the longer run as the structured energy marketplace continues to grow.”
E-lecTrade’s system assists participants, enhancing its operation with features such live structuring agent support, embedded analytic tools for deal evaluation and optimization, negotiations support and user-friendly messaging. Jeung said the system is designed to take structured transactions that previously took up to a month or more to complete and will reduce the completion time to about a week.
“We appreciate the candid feedback we got from our participants about the importance of having created a better way to identify and execute structured transactions,” said E-lecTrade’s CEO Anil Suri. “We now have even more reason to believe that our service will help all market participants do a better job buying or selling power in the forward markets. Furthermore, we are convinced that our portfolio management features will emerge as an equally critical management tool for direct portfolio-impact analysis regarding specific transactions that participants are considering. With more and better information, each trader can better balance and manage risk in an electric power market that has never been riskier — as California’s recent price spikes and plunges clearly show.”
“Looking ahead,” Suri said, “we understand that structured transactions are, by their very nature, less frequently transacted largely because of their complexity. As we add participants who use our neutral structuring desk to do these complex transactions anonymously — instead of using lengthy RFPs or direct negotiations — there will be more liquidity and more efficiency in the way power is traded, distributed and consumed.”
To achieve critical mass for liquidity, Suri said E-lecTrade will focus on selected regions and market participants. After an additional ‘mini-beta’ test, Suri said the system will “continue to layer in additional participants and move to the live launch over the next several weeks.” Transaction costs can range between 5 cents/MWh to 25 cents/MWh depending on the complexity of the transaction.
E-lecTrade’s participants will use advanced proprietary software that acts as a matching agent between the specific requirements — the “ShapedPower” needs of the buyers — and the available supply from producers. Simultaneously, E-lecTrade’s systems provide tools for companies to evaluate the risk profile of their portfolio in real-time.
E-lecTrade was founded in 1999 to develop a specialized electronic marketplace for electric power, to improve market liquidity and price transparency in the structured products market. The company has offices in New York, with branch offices in Walnut Creek, CA, and Sydney, Australia. Funding for E-lecTrade comes from two venture capital companies: San Francisco-based Nth Power Technologies Inc. and Shalom Equity Fund. For more information on the system contact the company’s Tarrytown, NY, headquarters at (914) 524-7390 or email email@example.com.
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