RiskTech Forum

Energy trading risk management

Posted: 22 October 2012  |  Author: Sharon Davis


Energy trading risk management is a highly diverse market, with a number of sub-sectors to the market (electricity, coal, gas, oil, petrochemicals and refining, retail markets, industrial wholesale markets, and logistics) and a wide range of players (including regulated utilities, brokers, hedge funds, banks, and industrial users). This means there is considerable variety around the requirements for energy trading risk technology systems.

There are nonetheless some key trends across the sector as a whole. Risk models, which have traditionally been based on those from financial markets, need to be overhauled to reflect the effect of physical attributes on energy risk and the growing complexity of energy trading markets. There is also an increasing requirement for integrated risk management in the sector, with greater inclusion of operational risk and more computationally intensive credit risk.

As a result of these trends, firms are now looking for integrated energy trading risk management technology solutions, rather than component tools. However, in many cases, solutions from more than one vendor are used, due to differing capabilities. No technology system in this space offers complete coverage of the varied sector, which means firms should integrate flexible systems to manage energy trading risk at an enterprise wide level.