As an energy trading services company, we trade on various energy markets. The APX is on of those markets. But how does this market actually work?
Senfal uses the various energy markets to save or earn money for our clients. Every energy market has specific features, one is to buy energy years or months ahead, while on the other one you buy energy up to 15 minutes prior to delivery. The major time windows are: years and months ahead on the forward market EPEX, Over The Counter (OTC) and bilateral, day-ahead on the APX/ENDEX, the intra-day and real-time on the imbalance market. In this blog we will elaborate on the day-ahead APX/ENDEX.
The day-ahead APX/ENDEX: How it Started
The APX Power NL was founded in 1999 to support the liberalization of the energy market. The market operates in the Netherlands, Belgium and the United Kingdom. In 2015, APX integrated with the ENDEX SPOT and activities started to merge. Now it is officially called EPEX Netherlands. Important shareholders are the Dutch transmission system operator (TSO) TenneT, the Belgian TSO Elia and the French TSO RTE. The core activity of the APX/ENDEX is hosting the day-ahead market. Today, the APX/ENDEX also offers a continuous trading facility for intraday and strips markets, two markets on which we will elaborate in following blogs. In this blog we will focus on the day-ahead market.
The APX/ENDEX: day-ahead market explained
The day-ahead market is a market where energy is traded on a day to day basis; you buy/sell energy for the next day. To understand how it works, it is important to keep two things in mind. First of all the APX is a trading place for energy; energy producers sell energy and energy users buy energy. Users of this marketplace are not you and me, but energy suppliers like Vattenfall Nuon or Eneco, large industrial companies and trading companies. Secondly, you have to use the energy at the same moment it is produced. So the energy you buy for Monday night 11:00 PM, has to be used in that hour. You can’t buy energy in an off-peak (and cheap) hour, to use it another (expensive) hour.
On the APX day-ahead market you can trade energy on an hourly basis. This means the prices can and will vary per hour. Monday 9:00 a.m. there could be a price peak, while on Monday 4:00 a.m. prices could be only half of the peak price. Variation in prices are all dependent on the principles of demand and supply. If there is a lot of energy produced and little demand, the prices will drop and vice versa.
12:00 CET: the clearing price
Every day before 12:00 CET every producer states the minimum price per hour for which he wants to sell his energy. All the energy buyers do the same thing, but the other way around. Every day these prices are compared by ordering the bidding volumes on descending price-order and ordering the demanding volumes on ascending price-order. At the point where the two created price-curves cross, the market clearing price is formed. All people that bid more than the market clearing price, get to by their volume against the market clearing price. On 12.00 CET on the day immediately preceding the day of delivery the clearing price is published and every party knows for how much the energy is sold and bought per hour.
How does Senfal use the day-ahead market for his customers’ benefits?
Now you know how the APX works, but how does Senfal use the market to help its customers? Senfal has developed software that is able to predict market prices and the energy use of our clients assets. This way our software can predict when the peak and off-peak hours on the APX will be. Easy you would say, you just buy energy when prices are low. But, as was stated before, you have to use the energy at the exact same moment it is produced and thus bought. So you can’t just buy energy in the off-peak hours, since these are probably not the hours when you want to use the most energy. To solve this problem, Senfal’s software is also able to manage energy assets. So it can switch the energy asset on or off, or make it use less or more energy, based on the moment of the day with the best price, keeping the quality of the production level in mind. The prices on the APX are very volatile, meaning they can vary a lot in price depending on the hour. So it can be very useful to adjust the energy use of an asset based on the price on the energy market.