Electricity house of the year: Macquarie

Energy Risk Awards 2023: Bank’s credit and collateral products help clients weather market turmoil

Participants in US power markets will be hoping for more benign conditions this year compared with 2022. Then, high natural gas prices, weather events and transmission constraints combined to both push prices up and drive enormous volatility across the gamut of US wholesale electricity markets.

For Macquarie Group, winner of Energy Risk’s Electricity house of the year award, that put a premium on its ability to help clients manage credit exposures, as whipsawing prices pushed margin payments through the roof.

“The past year witnessed unprecedented volatility across multiple markets,” says John Brickey, managing director of US power marketing at Macquarie, in Houston, Texas. “The financial intensity of increased margin postings both on exchange and with bilateral counterparties was a theme [for clients] the entire year.”

The team has supported its customers with a range of financing and credit products, such as borrowing base facilities, prepays and contract monetisation structures, and credit lines to support clients in the face of significantly increased margin and funding requirements.

For example, the bank is able to provide credit sleeve facilities that act as cash management tools, allowing merchant generators to access market liquidity for hedging purposes, without the need to post cash collateral. “This product proved exceedingly useful to clients in the past year, given the increase in both interest rates and commodity prices,” says Brickey.

In addition, with the benefit of its ‘A’ rating, Macquarie has been able to maintain a large number of open credit lines through periods of volatility to provide customers with consistent access to the market and the continued ability to manage their risks.

“Macquarie has a long history of working alongside our clients in challenging market conditions and continued to do so during this period,” adds Michael Hiller, head of Southeast power trading at Macquarie.

A perennial challenge for generators and consumers in North America is the patchwork of regional power markets, with an array of transmission constraints and bottlenecks that can lead to regional price spikes. Here, Macquarie benefits from teams in each regional marketplace and from utilisation of physical transmission assets.

“Our gas and power desks are situated by region to allow for the best possible collaboration which, in times of market volatility, proves to be very important,” says Tim Bourn, co-head of North American power, gas and emissions and global head of LNG at Macquarie. “We seek to understand fully the fundamentals of each power region and how those fundamentals will impact the supply and demand construct.”

Macquarie also manages a physical portfolio of long-term and seasonal transmission assets that help optimise power flows and manage client needs. These assets help Macquarie flow power throughout the US grid in times of stress, including moving power to adjacent markets and helping intermittent renewable energy assets sell power during periods of high availability.

“Power transmission assets are an increasingly needed instrument that allows for power to flow from less economic regions to locations in need,” says Hiller. “This is occurring at times of high demand but is also increasingly assisting regions where intermittent assets are generating too robustly.”

More broadly, the bank is working closely with clients to help them shift towards low-carbon energy systems. “Macquarie has a commitment to accelerating the energy transition across the entirety of our businesses globally,” says Bourn, adding that the bank is active in carbon markets, while its Green Investment Group is structuring longer-term power purchase agreements to offtake power from renewable assets.

“Macquarie remains committed to working alongside our clients to support their energy transition needs by providing solutions that facilitate their decarbonisation goals,” says Bourn.