Leading global wind turbine manufacturers Vestas and Siemens Gamesa have roots in Denmark, which now covers around 30 per cent of its energy needs with renewables. The wind turbines filling fields nearby flag the origins of a future-focused business.

Far from the sprawling financial hubs of London or Frankfurt, high-tech traders in Denmark’s university city of Aarhus are driving rapid change in European power markets, easing the shift to renewables with technology that also carries some risks.

The red-brick buildings, pavement cafes and streets full of cyclists in the coastal city on the Jutland peninsula belie the sophisticated computer-driven trade in electricity and gas across Europe taking place inside some 10 firms based here.

The rapid diversification brought by renewables, coupled with growing competition and digitalisation in traditional European power and gas, has lowered margins, shortened contracts and brought an explosion of data for traders to consider.

Algorithms can examine live data about the output of wind turbines or solar panels, changeable weather patterns, demand and fuel price data much faster, more accurately and at a lower cost than a human trader.

A Dane called Henrik Lind spotted an opportunity in Aarhus, where Vestas is based, and set up Danske Commodities in 2004. It and other firms established since - some by former Danske Commodities employees - now use algorithms and artificial intelligence to reap rewards from real-time fluctuations in supply and demand.

“A knowledge industry has been created here of power, gas, renewables, Big Data, artificial intelligence - a combination of the traditional markets and the Silicon Valley tech,” said Jesper Johanson, chief executive and co-founder of InCommodities, one of four Aarhus-based firms Reuters spoke to.

Energy companies and banks have their own trading desks experimenting with automation and utility companies are also dipping their toes into the business, but some say that with customers to satisfy, the stakes are much higher if they get it wrong.

In an ideal world, the technology helps energy producers to sell their output at the best price, utilities to keep their costs and supplies steady and bankers and brokers to make money with trades that smooth over sharp changes in supply or demand.

Balancing those interests and ensuring transparency and predictability is a challenge, however, and market experts expect regulation to evolve as it has for financial markets as power trading develops.

Specialist firms are already growing fast as the shift away from fossil fuels introduces a raft of new variables.

“I consider InCommodities just as much an IT company as a commodity trader,” said Johanson, one of four founders of a two-year-old company which now employs 35 people trading short-term power and gas in ten different European markets. All four founders have previously worked at Danske Commodities.

InCommodities’ earnings before tax jumped 529% last year to 7.9 million euros ($8.9 million) and it plans to expand into UK gas next year, emissions markets and, potentially, liquefied natural gas in future.

Danske Commodities was bought by Norwegian oil and gas major Equinor last year: its 50 dedicated energy traders are now doing more than 3,750 trades a day; 24 hours a day; 7 days a week and across 38 power markets.

Unlike InCommodities, which trades for itself, Danske Commodities buys and sells on behalf of clients which may be power companies or renewable energy producers; its earnings before interest and tax rose by 28 per cent last year to 72 million euros.

“We treat data as gold. We believe in automation. AI and algorithms are important to be able to leverage the trend of digitalization and develop a competitive edge in these power markets,” said Andreas Schwartz Knudsen, the company’s head of commercial business development.

Leading European power exchange EPEX SPOT said automatic trading began on its platform in 2012 and by last year accounted for around a third of record intraday and day-ahead volumes of 567 terawatt hours (TWh).

Six senior company officials from Danish-based companies involved in the trade interviewed by Reuters all saw European power trading becoming so complex that only computer modelling, coupled with human traders, could tackle it.

Investment in automation technology can cost from 100,000 euros to several millions but the most successful has a payback of between one and two years, according to Philippe Vie, group leader of energy, utilities and chemicals at business consultancy Capgemini.

Reuters