Algorithms and Automation: What Italy Needs to Succeed in the Continuous Power Market

The integration of Italy into the Single Intraday Coupling (SIDC) is an important milestone towards completing the integrated European intraday market.

On the intraday market, buyers and sellers of energy work together across Europe to trade continuously on the day the power is needed.

This is necessary because renewable power production is susceptible to changes in weather conditions and this brings volatility to the power system.

Continuous liquid intraday markets are an essential part of the modern power market setup where renewable power production has a high share.

The intraday market makes it easier for market participants to stay in “balance”, transparently give or receive price signals and consume or supply the correct amount of power after the closing of the day-ahead market.

As Volue is the leading provider of algo-trading and execution software in the EPEX and Nord Pool area, we asked Volue experts Marco Boninella and Roland Peetz what it would take for Italy to succeed in the continuous market.

Forecasting & optimisation

Italy is joining a power market that is too complex for humans to manage manually. Power professionals now need to examine their portfolio data in extreme detail, harness its complexity, and translate it into effective real-time decision support.

In the continuous market, automation of critical business processes is a key factor for success.

“You need software to react nearly in real-time to changes in the continuous intraday market and balance orders, relevant changes in the availability of power plants, and weather data,” Marco Boninella says.

“You need to enable the energy management, trading and dispatch teams to use precious resources in an optimal way to reduce imbalance costs and increase revenues.”

The continuous intraday market is only a step in the harmonization of the Italian power market towards the other European models.

“This is the first introduction of the concept of market portfolios in the Italian market. Energy management, trading and dispatch teams now need software to manage the relation between market portfolios and physical power plants,” Marco Boninella says.

In Italy, A2A and Enel have already chosen Volue software for production planning & energy management to allow for a coordinated power plant portfolio optimisation of thermal, hydropower and renewables.

Algorithms & automation in trading

Experienced traders working 24/7 in the intraday market increasingly use smart algorithms and automation to steer the risk and execute trades.

“As a market-leader in algo-trading in Continental Europe with a majority of customers in the highly developed intraday trading markets in Germany and North Europe, we see that algorithms have taken over the market. Algorithms modify the orders fast and get the best price every time, maximizing PnL. It’s very important for Italy to consider this going forward since trading automation creates extra liquidity in volatile markets,” Roland Peetz says.

In algo-trading, market participants use pre-defined trading strategies with well-designed algorithms that don’t exceed the risk mandate.

“We make sure that our algorithms are always on top of the interconnected European markets taking advantage of market trends elsewhere. Another important aspect to look out for is the quality of the trading screens. This is something we work very hard on at Volue because we want to offer our customers an intuitive trading experience,” Roland Peetz says.

On market place level, the programmatic interface of the new Italian trading platform now needs to handle liquid 24/7 markets with volatile and fast-changing order books.

“Our experience from participating in continuous intraday trading markets in Europe since 2015 shows that the Italian market platform will need a strong and reliable programmatic interface (API) to be able to handle this. This is something several other leading market participants have also pointed out and is a prerequisite for creating a platform that provides additional value to the Italian market participants,” Roland Peetz says.

The team at Volue is currently in close dialogue with the Italian power exchange operator GME and relevant market participants to follow up on developments and share their experience from the EPEX and Nord Pool market operators.

Volue has plans to complete the API connection to the Italian market for Volue’s Automatic Execution Service (Likron) as soon as the API is available in 2022.

“We already work closely with the market operator and customers and are ready to jump on board as soon as the API is ready.”