Decarbonizing Electricity Systems

The Growing Importance of Quants and Data Scientists in the Energy Industry

The ongoing energy transition has been driving a shift towards the use of renewable energy sources such as wind and solar power, replacing traditional fossil fuels. While this is a positive development for the environment, it also poses significant challenges for the power trading market. Unlike traditional energy sources, renewable energy sources are increasingly difficult to predict due to their inherent variability and dependence on weather conditions. As a result, power traders are now required to operate in a much more volatile and uncertain environment, requiring a higher level of sophistication in data science and quantitative analytics resulting in a surge of hiring within this domain.

Historically, participants in the energy industry sought profits by sourcing low-cost around the clock supplies of electricity from sources like a captive coal-fired generator. The rise of renewable energy sources, which are often intermittent and dependent on weather patterns, has introduced greater variability into the power trading market. Due to this transition financial opportunity is increasingly dependent on taking advantage of volatility in the market, rather than profiting off consistent resale of more traditional energy. This dynamic requires a deeper understanding of the factors that influence supply and demand in the market, and to have a competitive edge, firms engaged in power trading must continue to invest in their analytical capabilities for forecasting in these areas.

One area where this competitive edge is especially important and where data science and quantitative analytics are particularly useful is within in load forecasting. Machine learning approaches based on artificial neural networks (ANN) have emerged as a popular tool as these models are able to deal with non-linearities and multiple types of inputs, making them well-suited for predicting the complex and highly variable nature of renewable energy sources.

Furthermore, to combat the weather driven volatility of the renewable energy market an increased presence of battery facilities and strategies focused on bidding on this storage has emerged. However, the level of battery technology and quantity of such facilities is far from sufficient in decreasing overall market volatility at this point. Rather, it adds an extra layer firms must consider when participating in the power market. With battery costs being based on nuances such as their charge and discharging styles and overall efficiency, it is an incredibly complex space to operate in. Entire positions even are being created with an emphasis on optimizing these battery storage bids, yet again requiring expertise in quantitative analytics and data science.

To increase these capabilities, we have seen a continuous uptick in demand for data scientists and quantitative developers. Organizations across the energy domain need professionals who have exposure to machine learning and can help analyze time series data, accounting for factors such as seasonality, trends, and cyclic patterns to produce accurate and reliable load forecasts. Knowledge in specific methodology such ARIMA, LSTM, Prophet, XGBoost, and Random Forest algorithms are especially sought out.

As demand for professionals with experience in this technology stack grows, many firms looking to expand their teams in these areas are facing challenges in finding qualified candidates from within the traditional energy trading industry. As a result, some are now turning to individuals from banking or fintech backgrounds, providing them with the necessary training in energy fundamentals to excel in these roles and meet their growth needs.

Over the past 12 months we have supported a number of clients with the development and build out of these capabilities. Energy majors, trading merchants, utilities and start-ups are all competing for talented individuals with a record number of quantitative analysts and data scientists being hired. With a continued effort to decarbonize our electricity systems, this trend is expected to not only continue but grow in the coming years. If you would like to have a confidential conversation to learn more about what we are seeing in this ever-evolving market, please reach out.

To explore the people possibilities for your business and how our network and knowledge can help you implement your vision of the future, please contact Ben Nordwick, Principal.

Founded in 2008, Proco Commodities is part of Proco Group – the Executive Search and Advisory partner of choice for leaders in international commodity, industrial and consumer markets.

We are commodity market specialists, focused on Investments, Finance & Risk, Technology, Corporate Functions and Commercial Management.  We partner with select clients who value the depth of our knowledge and network across each market and region, which means we can help them anticipate and adapt to the changing needs of the business.