How a European IPP built the foundations for Energy Trading
A European Independent Power Producer recognised that future growth would require new commercial capabilities. CommodityFirst helped establish the governance, risk and system foundations needed to prepare the organisation for trading.
Key results
- Market and credit risk policies approved
- Market and credit risk visibility established
- Consolidated Data Foundation
- Core trading and risk processes implemented
- Selection and implementation of an ETRM platform
- Roadmap for trading readiness
Who is this case suited for?
- Independent Power Producers (IPPs), Utilities, Energy companies transitioning to active trading
- Small to mid-size
- Heads of Trading, Chief Commercial Officers, Chief Risk Officers, Trading Transformation Leads, CIOs and Trading Technology Leaders
A changing market required a different commercial model
For years, long-term Power Purchase Agreements (PPAs) provided a predictable commercial model for many Independent Power Producers (IPPs).
Increasing competition and declining demand for long-term contracts are now placing pressure on margins across the market.
For this medium-sized European IPP, maintaining profitable growth meant exploring shorter-term contracts, greater pricing flexibility and increased participation in wholesale markets.
However, these opportunities introduce new forms of market and counterparty risk that require capabilities the organisation had not yet developed.
Rather than beginning with technology, the client recognised a more fundamental question:
Was the organization ready to trade?
Key challenges
The organization faced two simultaneous challenges.
First, its existing commercial model was becoming increasingly difficult to sustain as market conditions evolved.
Second, the internal capabilities required to manage a more dynamic trading environment were not yet in place.
Key gaps included:
- Limited visibility of current market risk exposure
- Inconsistent and incomplete data for risk calculations
- No agreed methodology for Price Forward Curves
- Limited credit monitoring capabilities
- No formal market or credit risk governance
- Critical operational processes still undefined
- No or limited systems supporting a trading business
- No structured roadmap for future trading capabilities
Perhaps most importantly, these weaknesses affected not only future ambitions but also the governance of the existing business.
The client needed to strengthen its operational foundations before accepting additional commercial risk.
Building a no-regret trading foundation
Before expanding into trading activities, we had to establish the capabilities required.
Rather than focusing on a single technology implementation, the programme addressed the organisational building blocks needed to support future commercial growth.
The objective was clear:
Protect today’s business while enabling tomorrow’s opportunities.
The work focused on creating practical capabilities that would remain valuable regardless of future technology decisions or commercial strategy.
What was delivered
Over the first phase of the programme, we collaboratively designed and initiated the implementation of several core trading and risk capabilities.
Development of an initial understanding of the organisation’s current market and credit exposure using available data and pragmatic risk models.
Definition of future data requirements, existing data quality assessment, and data structure design needed to support consistent risk calculations.
Established methodologies for constructing price forward curves and developed proof-of-concept models to support pricing and valuation.
Designed the first versions of both Market Risk and Credit Risk policies, including:
- Risk metrics
- Risk appetite
- Exposure limits
- Counterparty governance
- Reporting framework
- Trading mandates
Designed and implemented governance for:
- New Product Approval Process (NPAP)
- Price Forward Curve (PFC) process
- Roles and responsibilities across the organisation
Anticipated future needs for Trading systems
- Assessment of current systems’ support for trading and risk management
- Selection and implementation of an ETRM
- Laying the foundation for further system support required (Ex: forecasting models for production and consumption)
- Increased knowledge and overall awareness of Trading Business and systems across the organization and board of directors
- Assessed current capabilities and mapped new complementary ones
Initiated the next transformation phase, including evaluation of End-of-Day processes, forecasting capabilities and future implementation priorities.
Positioning the organization for Trading
The project is ongoing, with core governance and foundational capabilities established during the initial phase and longer-term technology initiatives continuing over subsequent months.
While the organisation’s trading transformation continues, the programme has already established the foundation required to make future investment decisions with greater confidence.
The work positions the client to:
- Develop trading capabilities on a stronger governance foundation
- Improve visibility of market and credit exposures
- Standardise critical commercial processes
- Reduce implementation risk for future technology initiatives
- Make future commercial decisions using more reliable market information
- Scale trading capabilities through a structured roadmap rather than isolated projects
Why this matters for other Power Producers
Many Independent Power Producers are facing the same market dynamics.
As traditional revenue models become more challenging, entering wholesale trading or offering more sophisticated commercial products becomes increasingly attractive.
However, successful trading requires much more than technology.
Without reliable data, clear governance, defined processes and effective risk management, organisations increase operational complexity faster than organisational capability.
Building a no-regret-foundation first, creates a more controlled path towards trading readiness.
Key Learnings
Every trading transformation is different, but several principles consistently determine whether organizations are prepared to manage greater commercial complexity.
- Trading readiness starts with operating model and governance, not technology.
- Reliable market and risk data are prerequisites for informed commercial decisions.
- Standardised processes reduce operational risk as trading activities expand.
- Risk management capabilities should evolve before commercial exposure increases.
- A phased, no-regret approach creates flexibility for future technology and operating model decisions.
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