Newcomer of the year: E.on Portfolio Solutions

Energy Risk Awards 2019: Newly formed hedging advisory successfully navigates firms through harshest UK winter in eight years

E.on headquarters in Essen, Germany

While the UK shivered in the arctic temperatures of the ‘Beast from the East’ last winter, the newly created hedge advisory E.on Portfolio Solutions (EPS) underwent something of a baptism of fire.

Launched in March 2018 as part of E.on Group’s energy markets department, it immediately faced a severe weather event on a scale not seen since 2010. With huge spikes in power and gas demand and a five-fold increase in wholesale prices, EPS had to react quickly to fast-changing weather forecasts and develop strategies that would help its clients navigate the worst of the price volatility.   

“This was both a huge challenge and a significant opportunity for us as it allowed us to demonstrate our capabilities at an early stage of our journey under the most difficult of market conditions,” says Adam Jones, head of sales trading at EPS. “It was the skill of our portfolio managers and traders that got us through it,” he adds.

The nine-strong EPS team includes portfolio managers, market analysts and sales traders who monitor the market and fix energy prices for clients in order to achieve lower energy costs, protect businesses from price volatility and manage client exposure to risk. Clients include Britvic, Heathrow Airport, Leo Group and NSG Group.

While UK energy provider E.on, part of E.on Group, had always offered services in this area, they had historically been outsourced to third parties. Bringing this in-house was seen as a better way of delivering the service and an opportunity to strengthen customer relationships. It also reflects a new relationship with customers as E.on moves away from being a utility to being a solutions provider, says Jones.

“This service is about helping customers find their way through what is now a much more complicated market,” he says. “If, for example, we’re dealing with a timber firm, their primary business is buying and selling wood – they don’t necessarily have the resources to navigate the energy market, and that is where we come in.”

All E.on customers are offered the services of EPS, which is a ring-fenced operation to ensure there is no conflict of interest for the team in getting the best energy deals for EPS customers. Compensation is also structured to incentivise this. “All end-of-year bonuses are based on getting the best price for the customer,” says Jones. 

This service is about helping customers find their way through what is now a much more complicated market

Adam Jones, E.on Portfolio Solutions

The hedging strategies devised by the EPS team are based on a deep understanding of both the customer’s energy needs and the market, in order to identify areas where savings can be made. Being part of the wider E.on Group allows EPS customers access to more advanced service offerings. For example, if a firm has some back-up generation – it might be an office block or warehouse with back-up diesel generation – EPS can advise when the best time would be to offer that back into the market based on forward spreads. “When the power price is high relative to the gas price, firms might be able to gain some extra cash from their back-up generators,” notes Jones.

Another service offered is “triad” reduction. The amount of strain a customer puts on the transmission system is measured according to their demand in the three highest periods of use which take place between November and February. “If you can move your energy demand away from those periods, it reduces your costs,” says Eugene Patterson, sales trading analyst at EP. 

“E.on releases alerts when we think there is going to be a triad, asking customers if they can shift their demand away from the hour or half-hour period.”

The unit is also set up to work with clients who own assets, such as a combined heat and power generator or solar panels and want to optimise their usage, including selling power back to the grid at the best times. 

“As our portfolio managers have a very close understanding of what a customer wants, it is very easy for them to open discussions on other energy solutions,” says Patterson.