Unicorn offers traders an information shield against market risks

Electricity prices in 2022 swung wildly. While at the beginning of the year a megawatt-hour on the Power Exchange Central Europe exchange was trading below 150 euros, by the end of August it had shot up to nearly 1,000 euros, before falling back below 300 euros ahead of Christmas. The situation improved somewhat in 2023, when prices began returning to their original levels.

However, extreme volatility and an annual range of hundreds of percent mean huge uncertainty not only for end consumers, but also for energy traders. Suitable analytical tools that draw on expert know-how and a robust data base can help them prevent risk. One such tool is Lancelot ETRM from Unicorn Systems, a company that has been developing software for the energy and utilities sectorfor more than 25 years.

A clear example of how it can be used is an energy trade concluded through traditional means—so-called over-the-counter (OTC) trading, in which two parties enter into a bilateral agreement by any means. This exposes the buyer to the risk that the commodity will not be delivered and the seller to the risk that the purchase price will not be paid. There are few ways to protect against these risks other than to assess them continuously and make the right decisions accordingly.

An ETRM system is an ideal tool for risk management

A rating of individual market participants provides a basic guide to the market. It may be issued by a reputable rating agency, or a trader can prepare one internally based on an economic analysis of a potential transaction counterparty. The rating then determines the amount of financial security required for the transaction and the level of exposure it is reasonable to take on with that partner.

“If my partner is a strong, stable company, I can have a position worth tens of millions of crowns with it. But if it is a small player with no track record, the limit will be much lower or even zero, because the risk of non-payment or non-delivery is significantly higher. Our ETRM system then continuously monitors where I stand with each counterparty, and whether I am still within reasonable exposure and collateral limits or have exceeded them,” explains Tomáš Koldcsiter from Unicorn.

Lancelot also offers a range of standardised reports. These include Profit and Loss, a statement of profit or loss at a given point in time that summarises the overall balance. Another is the Mark to Market report, which determines the valuation of all current positions by comparing contract prices with current market prices. Traders can then make an informed decision about whether to continue holding or close a given position. Last but not least, Lancelot provides a Value at Risk report, which indicates the expected profit or loss over a specified future period at a given probability level.

“Our system is not a truth machine that tells users what to do. Instead, it brings together as much information as possible from their company and the market, then processes it using various metrics to visualise information about the current trading position and its risk parameters as quickly and clearly as possible. This enables traders to make timely, informed and well-grounded decisions,” adds Tomáš Koldcsiter.

Its advantages over competing solutions include Unicorn’s wide range of products, which it can combine effectively within Lancelot ETRM; its ability to provide energy market data very efficiently; its own high-quality business know-how, supported by transparent documentation; and the ability for users to customise the system’s settings to suit their own needs and experience.