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What’s the purpose of energy trading?

01/04/2023, 11:00 | Security of supply

Switzerland is long in summer and short in winter. That is, we produce more electricity than we can use in summer and less than we need in winter. As electricity is not easy to store, it makes sense to sell the excess electricity in summer and buy the electricity we lack in winter. In other words, trading electricity is necessary to secure the power supply in Switzerland. Swiss utility companies participate in the energy markets e.g., via the EEX, where they buy and sell electricity to balance their portfolios. There is no specific marketplace in Switzerland. Such a market would be too small to be “liquid”.

Marketplaces have been introduced in Europe to increase transparency and provide security to the market participants. Electricity can be bought and sold in advance (forward) as well as on the spot market (day ahead, intraday). It is common for market participants to buy and sell electricity several years in advance in order to hedge against potential falls (producers) or rises (consumers) in price.

However, trading is often viewed negatively by some sections of society and by many politicians. Along some parts of the political spectrum, it is regarded as pure speculation and as the cause of the crisis or as the sell-off of Swiss electricity on the European wholesale market.

Navin Parasram, Head of Trading at Alpiq and Member of the Executive Board, sheds more light on the topic of trading in the following video: