Backlash after Danish boomtime?

Several Danish trading companies have posted record high profits in recent weeks. What's the secret to their success? Listen to a discussion on the reasons behind the massive rise in earnings and how they have been received in Denmark amid a cost of living crisis. In addition, a row over huge bonuses and allegations of market manipulation are likely to increase the chances of a regulatory backlash. 

Host: Richard Sverrisson, Editor-in-Chief, Montel
Guest: Anders Plejdrup Houmøller, CEO, Houmoller Consulting ApS
Martin Dam Wied, Head of Department, Green Power Denmark

Transcript

Richard Sverrisson, Editor-in-Chief, Montel: 0:05

Hello listeners and welcome to the Montel Weekly podcast. Bring Your Energy Matters in an informal setting. In today's pod, we take a close look at Denmark. Dan Ski Commodities is the latest trading firm to post record high profits. Following similar earnings boosts at Norley and Gie Denmark. At the same time, several traders are suing their former employers over unpaid bonuses, and there are also allegations of market manipulation. What is going on in the Nordic country, which has been a haven for boutique trading companies for many years? Are there concerns of a regulatory backlash as we in the middle of an energy and cost of living crisis? I'm Richard Sverrisson helping me discuss these issues are Anders Houmøller an independent consultant and Martin Dam Wied of Green Power Denmark, the association of Danish energy firms. A warm welcome to you both gentlemen. I hope you're well.

Anders Plejdrup Houmøller, CEO, Houmoller Consulting ApS: 0:55

Fine

Martin Dam Wied, Head of Department, Green Power Denmark: 0:55

Thank you.

Richard Sverrisson, Editor-in-Chief, Montel: 0:56

Excellent. How is the sentiment at the moment in the Danish energy sector? Martin,

Martin Dam Wied, Head of Department, Green Power Denmark: 0:59

I think there's, there's no doubt about it's busy at the moment. There's been a lot of public focus on the sector as a whole. You can say we are like in, in the spotlight especially from a customer's point of view, you can say lot of people, look into energy prices and so on. And then the whole rising of prices, of course had a lot of concern on the, what I could say, the public side. On the other hand, we we are a little concerned as a business sector to the what? The impatience about impatient to, to getting renewable up in, in the speed which is needed. So at the same times we are, you can say at the headlight of the car, and the same times we want to transform this this sector into a green sector where we can a lot of renewables, which is actually a good thing to occur in concern to the prices. That's, if you put it short, what's, what the temperature of the sector is at the moment.

Richard Sverrisson, Editor-in-Chief, Montel: 1:56

We've seen companies post record results this year for 2022. What's your reaction to that?

Martin Dam Wied, Head of Department, Green Power Denmark: 2:01

To the results as a whole, I think it's commonly loan. If the, there's a variation in the prices. There's, of course is a possibility of what you can say, earn money. But at the same times the traders is actually. Having a purpose in the market to like, even out the prices. So of course there's that is what you could say one of the reasons why. The earnings had gone up to the variation of the prices. And you can say the main reason is of course the lack of Russian gas and the dependency of Russian gas. So I think it's what you will see in any market is that. If there's a lack of supply, there was there's a tendency to, that the prices would, will go up. And of course there's also an earning opportunity. That on the stock market as well. So I think it's, it has something to do to the extraordinary situation. We are we are in, and I think it wouldn't. Yeah. And in the long run it would be a different situation,

Richard Sverrisson, Editor-in-Chief, Montel: 3:01

certainly an extraordinary year. But and as you can say, you, no one is blaming these companies for these market prices or the market situation. But I you understand that maybe there is some concern when when people can't pay their own bills as you as well mentioned, of course. But Anders what's your what's your reaction to these bumper profits that we see in Denmark?

Anders Plejdrup Houmøller, CEO, Houmoller Consulting ApS: 3:18

They sink. That we should count as lucky in Denmark, that we have so many clever traders. I think it's an opportunity for the country. We have been traders in Denmark for at least 2000 years and this always shows us that we are carrying on with the tradition and but I still feel the backlash. Also, politicians in Denmark are discussing whether there should be a special tax for trading companies and stuff like that. And you can simply tax these companies out of the country. Dans commodities just published their result witnessed. They, and they emphasize how much tax they have paid in Denmark. If you tax these companies out of the country, then we don't have these taxes anymore. So I'm fearing a backlash, and I think we should count as lucky that we have so many clever traders in Denmark. But of course these accusations of market manipulations, that's also, that also show pass a very bad light on the business. We don't know if these accu, if these charges will stand, we need to emphasize that, but still it costs the business in a bad light.

Richard Sverrisson, Editor-in-Chief, Montel: 4:22

Yeah, I'll come back to that later about the surveillance regime, whether that's fit for purpose. The regulatory framework on this, but how have the profits been received in Denmark? I'm thinking here of industry or the end users who are, paying very high bills.

Anders Plejdrup Houmøller, CEO, Houmoller Consulting ApS: 4:35

They are some customers are not receiving it well because they think that these profits, they have been made on their account. Which they have actually not because these trading companies they're doing by far the most of their activity in Europe because the liquidities that they in this market is far too small to carry out this kind of trading. So they are trading mainly in continental Europe, and this is where they harvest these big profits. Because we have this price, we have seen this price volatility in continental Europe. I think it's very, it is a bit of sad that people think that these profits have been made on their account, that they haven't, they have not.

Richard Sverrisson, Editor-in-Chief, Montel: 5:16

And are the politicians able to explain this, Martin? It's very clear that, in a different world without the energy crisis and the war dunsky commodities results would be something to be celebrated, but they seem to be very low key at the moment. What's the reactions from the politicians in Denmark?

Martin Dam Wied, Head of Department, Green Power Denmark: 5:32

If I first just can add a little thing to what I agree with what Anna said. Of course. I also think it's dependent on how you're talking about pro professional customers, or you're talking about private customers, because that's a, that's different. I think that companies of course understand more or less the mechanism, but it's difficult. It's difficult to communicate what actually, what the traders do in the market. For. Most people, and I think it's the same if, in, in regard to your question about the politicians, I think we have the current government have the ma majority at the moment. So it's I think the opposition is looking for something to hit the government with, and I think that's. That what, that's what we are seeing now because these these earnings and in results from the companies is, especially at the left wing a cause for trying to make a political case out of it. I think it depends on where you are at the moment, at the political range you can say. But of course it's, I think it, it could easily go into politics, this, because it's consumer issues in the last and as Anna said, it isn't actually because they had the traders has a purpose in the market and actually stabilizing the prices. But I think it's very difficult was actually what we are seeing is like it's difficult to communicate and everything is getting mixed together at the moment. Bad cases different issues and so on. So it's like you have to, to com communicate this more or less complicated thing. In an, in a time where everybody's looking, as I started to say, at this sector. So it's I think things get mixed together also for the politicians.

Richard Sverrisson, Editor-in-Chief, Montel: 7:12

As, Anders said, that a lot of the profits earned here are outside the Danish borders, but there is that being explained properly here?

Martin Dam Wied, Head of Department, Green Power Denmark: 7:19

I think we try and also what we have seen the same on Wednesday when densities came out. They're also trying to explain that in the Ts and the television and so on. And I think what we attend as a, an organization also try to do is to explain the politicians what is actually the facts about this, I think is the best way around it. But but. It's difficult stuff sometimes, but we try to make it easy to understand.

Richard Sverrisson, Editor-in-Chief, Montel: 7:44

Absolutely. We've seen that it's an, and it's a very political hot potato as given the cost of living crisis. But Anders, how has, Martin mentioned the professional consumers of energy. And that, it's like the power intensive industry. How have they reacted in, in response to these profits, if at all?

Anders Plejdrup Houmøller, CEO, Houmoller Consulting ApS: 8:00

We haven't seen any kind of heavy reaction from the professional companies. I formally worked as a secretary for the Federation of Danish Consumers of Energy. That's the big industrial consumers of electricity and natural gas. They're not they have not really reacted. I think as Martin says, they understand that these profits are made in in the Europe, outside in Europe. It's not made on their account. So I haven't really seen anything but it's true that towards the households, we have a job to explain that. What are the traders actually doing? The traders, I used to say the traders are just the oil in the market. The traders are simply the oil they make buyers and sellers find each other. They help them find each other. And without this oil, the market would not function properly. We would have seen some areas where the prices would've spiked much, much more than what we have seen in 2022. But of course, if you have. Big problems paying your bills for electricity and gas, and then you see lots, dozens of Danish trading companies having bumper profits. Of course, your instantaneous reaction is they have made these profits on my account. Why is this happening? It's not a, it's not strange. Of course, you react like that. And then we have a pedagogical problem explaining that they're actually acting as oil in the system. They dampen the prices. And they have not made these profits in Denmark.

Richard Sverrisson, Editor-in-Chief, Montel: 9:24

Before I turn to you, Martin but someone's paying for this, someone's, it's not just high market prices causing this. Someone's having to fork out. Someone's losing here Anders who could they be?

Anders Plejdrup Houmøller, CEO, Houmoller Consulting ApS: 9:33

When you have fluctuating prices, the traders, they don't care if the prices are higher, lower, they make profit on fluctuating prices. And then you simply sell when you have a spike, upward spike and you buy when you have a downward spike. Those traders will actually make money. They are those who correct the prices in the right direction. If you're selling, when the prices spike higher than what is a reasonable market price? Just by selling you are naturally putting a downward pressure on the price. If you are a clever trader, if you see the prices are now unreasonable higher than you start selling, and then later on when the prices go lower, then you start buying, but you are actually correcting the price signal. So who are paying? Those traders were stupid. Those who bought when the prices were too high and those those who were selling when we had a downward spike. Of course this this stupid trader who were buying when the prices were too high, that could be a supplier trying to sell to you and me. But here, at least here in Denmark, the households, they can leave their supplier with three months notice. So if you are a household, if you sick your supplier, he chasing me too high prices. But then just leave him, go to another supplier. So somebody's losing. Those who are losing are the stupid traders. So who bought when the prices were spiking up? But if this is your supplier, then just leave him.

Richard Sverrisson, Editor-in-Chief, Montel: 10:55

That's very possible in several other countries in Europe on this. But you are gonna add something to that, Martin?

Martin Dam Wied, Head of Department, Green Power Denmark: 11:00

Yeah. I think that it's very important to, to like separate social policy and. Energy policy and I think what we are seen also in Europe is it's going to be mixed together. We have seen distance about cabbing, the prices and so on. So what Anas just explained about them, what you can say, the mechanics or the oil in the business is have that we, it's important to not to stop this mechanisms. And I think if when you're mi mixing up a social policy with energy policy of course it's natural because the politicians want to react. But I think it would it'll have a negative impact on the market when these things get mixed together.

Richard Sverrisson, Editor-in-Chief, Montel: 11:41

Anders?

Anders Plejdrup Houmøller, CEO, Houmoller Consulting ApS: 11:42

Yes I'll just say I agree completely. And we have a slogan, you should support people. Commodities don't need support. Support people, not commodities. So if the government intervenes and artificially keeps the price of electricity and gas down, then you're supporting commodities, not people. You should support the people, those who live on the small bodies, they need support when the prices go high, sky high. And those who are not living on small bodies, they just have to swallow it. They just have to sock it up and pay these high prices for energy. If you are artificially lowering the prices for energy, then you're keeping the consumption high during a period when we have very high prices. And you know when Putin closes when p Putin more, less shots of the gas, then the prices go high, and then someone must pay. When the prices go high, someone must pay. If the consumers are not paying, then the taxpayers will pay. Will pay and that's a stupid solution. Let the consumers pay and then support those house households who are living on the small budgets, separate social politics, do not interfere in the market, but support those who are living on the small budgets. That's a very important point with Martin is making.

Richard Sverrisson, Editor-in-Chief, Montel: 12:57

Yeah, absolutely. We saw Danske as well saying that they expect profits to return to a more normalized level next year. Does that mean and others as well. Does that mean Martin? We are out the energy crisis?

Martin Dam Wied, Head of Department, Green Power Denmark: 13:10

It is. I don't want to be like looking into the, to the future in that way but I think that yeah, more and less what you're seeing, at least at this short term, we have been filling up the gas storages and one point about what Anna just said is also that actually people has acted. And made a lot of energy efficiency and saving. So that is also the way the consumer side actually could react. So we have seen that the people got through this period by doing that actually. But as I said before, we also have to increase the speed of putting up renewable very rapidly. And that's just been this meeting in USTA and in Belgium where there've been discussion about. 300 megawatt putting up renewable. And I think we have to speed that up because that's one of the solutions because we have been too much dependent on Russian gas and when we are pulling that amount out. Then it's, of course it has to be trouble in some kind of way. So we have to replace that. And at the moment we are placing on l and d terminals. So that's like the, what you can say, it's short solutions of shipping in the gas. I think that we have to hurry up the trans the transition.

Richard Sverrisson, Editor-in-Chief, Montel: 14:22

Absolutely. Before I turn to you Anders, I'd just like to ask Martin, about, if we return to these record profits, are you worried that there's gonna be increased scrutiny of energy companies in Denmark? That there's gonna be more people looking at what these companies are doing and how they're earning their money.

Martin Dam Wied, Head of Department, Green Power Denmark: 14:38

I think in every business sector there's a possibility of scrutiny. You can see. I think you, it's very difficult to save. The amount will increase. You can have list more like theoretical answer that if there's a more opportunities, more what you can say. People who try their log will, will be there. But still, I think we have to have the, what you can say the entry of the market has to be like serious players in in the market. I think it's difficult to answer, but we have of course to to look out for it. And of course there has to be the right supervision in the market. And the, I think that I don't think we have to like. Regulate more heavily, but I think we have to look into, do we have the right amount of supervision in the market by the regulatory regulatory side.

Richard Sverrisson, Editor-in-Chief, Montel: 15:30

I know you have some strong opinions here Anders about the nature of the surveillance regime across the traded engine markets in Europe. What's your view?

Anders Plejdrup Houmøller, CEO, Houmoller Consulting ApS: 15:37

Before going to that? I'll just support Martin. We need to have investor confidence in confidence among the investors who are going to help us with this green transition. And in order to keep this confidence among investors, the politicians should not intervene in the market. They need to help people do not intervene in the market prices. And then, to answer your question, yes, we need more. I don't need, I don't think we need tougher regulation of the trader companies and stuff like that. I think we, so you should separate, do we need top regulation of the energy companies? No, I don't think that, and I also think that in the European Union we have remit and a host of all the rules. The rules are okay. The rules are fine. You now need to implement them. The rules are good. We now need to implement the rules. And this is where we are. This is where we are behind where we are really behind. Because on the European electricity market, we have hundreds of thousands of trade every day. And the same for the gas market. And in order to surveil a market where you have hundreds or thousands of trades, you can't do that manually. And currently we have a more or less 30 exchanges in Europe. And each of these little exchanges, they don't have the knowledge, they don't have the resources to surveil the market. Only a pan-European regulator can do that. And of course, even a pan-European regulator. And here we are discussing a. Even a pan-European regulator cannot manually surveil the market where you daily have more than 100 thousands traits. You need some really high powered statistics. You need some type of artificial intelligence who can come through this enormous amount of numbers and see if there are strange patterns, which should not be there. Only an automatic high powered high powered IT system can surveil the market with this number of traits. But on the other hand, the big number of traits is also an opportunity because if intelligent software can see if there strains patterns in such a huge number of traits. So it's a problem with the huge number of trades you can't surveil manually, but it's also an opportunity. It's an opportunity exactly for IT systems and artificial intelligence. They are tailor made for this kind of surveillance. But this is going to cost us money. This will cost money. This will cost very clever specialists who will build these surveillance systems. And in, we can only spend this amount of money in a pan-European in a pan-European context. Also, because you could, for example, you could manipulate the spot market take home the profit on the financial market. So you need to have a cross surveillance across all the markets. And see if there is some strange patterns. A company trading strangely, that's that's, that means we need to have a much, much stronger pan European market surveillance. And in practice, this means that Asia should have many more people, much bigger budgets. We can only hope or better regulation. We can only hope for a better implementation of the good rules we have. If we establish sar pan-European regulation.

Richard Sverrisson, Editor-in-Chief, Montel: 18:59

Absolutely and very strong and complex computing to back that up. But I think. In Denmark there have been controversial bonus payments, which are led to sackings and now legal cases. There's allegations of market manipulation. Is there an issue could that this could impact the reputation of energy firms in Denmark Martin, that somehow, what's the, that lower their ranking in public opinion?

Martin Dam Wied, Head of Department, Green Power Denmark: 19:23

There's no no doubt about, as I started to say, that the whole business is. Is in the spotlight and everything something like this comes up. We also have. Have smaller cases on the retail side in, in how you are marketing to your customers and so on, and adding that, all that up. Of course, it's undermining the trust of the sector. So we are of course not happy about these these cases, but as Anna said before, no, nobody has been. Just judged yet. So we have always had to look. But of course the bonuses, if you take that for instance, we as a sector has made steps to prevent this in the future, of course, because that's not acceptable to have bonuses with no limit. That's, we have we do not support that, and that doesn't our members don't do that as well. So that's very important to, to underline.

Richard Sverrisson, Editor-in-Chief, Montel: 20:15

Absolutely. Especially in the backdrop of the cost of living crisis that for, and the people that are struggling that Anders mentioned. But do you just a fine. Yeah, sorry.

Martin Dam Wied, Head of Department, Green Power Denmark: 20:23

Yeah. I just had a one thing to what Anders said. I won't comment in, in detail, but I think we of course, are always open to look into solutions and how can we surveillance the market. But I think it's important if you go into that system that there's a transparency that, that it is not Asia who's like closed having closed doors and you are not able to, as a market player to look into what is actually happening. But if the surveillance is in a transparent way. I think we will look into that with the, with in. But of course we have to see the current the concrete solution.

Richard Sverrisson, Editor-in-Chief, Montel: 20:58

A final word, Anders, do you fear a regulatory backlash in the weeks months ahead?

Anders Plejdrup Houmøller, CEO, Houmoller Consulting ApS: 21:02

Yes, I do. The politicians not only also in Denmark, but also elsewhere. They are eyeing these huge profits and they think that they have been made at the expense of consumers, which is luckily not the case, but we have a pedagogical problem explaining that. So yes, I do fear not a regulatory backlash, but a po political backlash.

Richard Sverrisson, Editor-in-Chief, Montel: 21:24

Certainly to be continued here, gentlemen. But as you say as well, no one's been convicted yet, so that's also important to bear in mind. But thank you very much, gentlemen for joining the Montel Weekly podcast.

Martin Dam Wied, Head of Department, Green Power Denmark: 21:35

Thank you very much.