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Expanding to the Italian power market is a crucial part of the risk management strategy in Europe

The Danish power trading company Yggdrasil is expanding its activities to Italy. Located south of the Alps, Italy’s climate is different from the rest of the company’s European power markets, and it means increased risk diversification.

Most Europeans look to Italy when they are craving warm and sunny weather. For power trading company Yggdrasil, the weather is also the main reason why Italy is the newest addition to the company’s portfolio. Across the Alps, Italy is affected by different weather systems than the company’s existing power markets in central- and northern Europe. And as power prices are highly affected by the production of power from renewables, different weather patterns mean less correlated power prices and thus greater risk spreading.  

– We are very conscious about our risks, and we conduct a thorough analysis of a new market before adding it to our portfolio. Hence, we started looking at the Italian power market at the end of 2021, and a year later we traded our first MWh. Today, the Italian power market is included in our daily trading activities, and we are slowly beginning to increase the volume. Now, we need to experience the Italian summer before we scale fully our investments in Italy, explains Lars Weber, Partner at Yggdrasil.

Completing the expansion to the Italian power market will take about six months. The temperatures in Italy can reach extreme degrees during the summer; the consequence is a predominance of power generated from solar panels and hardly any wind power. Hence, the power market requires a different approach than the rest of Yggdrasil’s European power markets. It means finetuning the company’s trading strategies to the hot Italian summer.

Automated power trading

Yggdrasil engages in short-term power trading, and each trade is automated. The approach is purely data-driven, and they use algorithms to analyse vast amounts of historical data about the power prices and the weather. Power prices are predicted by combining the data from the analysis with the weather forecast. An approach that has been successful so far.

– We are very good at analysing data and predicting the power prices a few days ahead, and our approach is very similar from one market to another. In Italy, we can reuse some of our strategies for the Californian market, but a new market always includes finetuning of our trading strategies before we start increasing our investments. Once we crack the code to the Italian power market during the summer, we can include it fully in our portfolio, explains Lars Weber.

Since the mid 2000s, Italy has invested heavily in renewable energy and is a well-established power market. This means a huge market potential, and as Yggdrasil has automated power trading, scaling the investments is done by increasing the amounts of MWhs without the need of additional manpower.

Facts about Yggdrasil

  • Power trading in 28 markets on 3 continents.
  • Total EBT of 148 million DKK (2021-2022).
  • External investor share of 15%.
  • The company has 25 fulltime employees.
  • Founded by Søren Agersbæk Jensen and Søren Bondo Andersen in 2018.