| | AUGUST 20218IN MY OPINIONTHE RISE OF ALGORITHMIC TRADING IN THE POWER SECTORBy Rajiv Gogna, Partner, Lane Clark & PeacockThe use of algorithmic trading in the power sector has been steadily increasing over recent years and, as more data is made available to inform decision making, this is only set to grow. This approach has taken longer to establish in power than other sectors due to disparate and unfriendly data over different platforms. This has meant it has been difficult to create efficient algorithms and train them, so power trading has historically been reserved for human traders. However, recent improvements in data availability have meant that algorithmic trading is now taking off in the power market.There are a number of electricity markets where algorithmic trading can be effective, one of the largest being the within-day market. High levels of liquidity, a large number of interdependent factors, and a tendency for volatile prices make this a prime market for algorithmically driven strategies. If the wind suddenly blows more, or a power station develops a fault, this can cause a significant price change and present opportunities that can drive a business case. These volatile swings are only set to grow as we see increasing levels of renewable generation on the system on the route to net zero.The most volatile of prices available is known as the `cashout' price, which shows a much greater spread than the day-ahead price (see below). The cashout price represents the cost of balancing the system in a given half-hour. For example, if the wind blows less than expected, National Grid must turn other units up to compensate. In Rajiv Gogna
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