Soldera Markets #11 | Faraday Trading - Building a Guarantee of Origin (GO) Market Maker

Transcript of the episode's discussion between Stenver Jerkku, Al William Tammsaar, Oliver Bonallack, Christopher Meyers, and Koen Andriessen

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Hey everybody, and welcome back to another episode of the Soldera Markets podcast.

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Today we're joined by Faraday Trading.

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So we've got Koen Andriessen and Chris Myers from Faraday.

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I want to hand over to you guys to do a little introduction about yourselves and

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tell us about Faraday.

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Just for the audience, we can say that Faraday are an environmental commodities trader.

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And obviously,

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this is a podcast that focuses on the guarantee of origin and renewable energy

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certificate space.

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There's going to be a lot to talk about, specifically price action.

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I think that's what this episode is going to be focusing on.

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But yeah, over to you guys just to do a little bit of an intro about yourselves.

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So my name is Kuhn Andries.

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I'm together with Hide and Christopher, one of the co-founders of Faraday Trading.

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Our backgrounds are actually in financial markets.

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And we're kind of the new kid on the blog in terms of the geo market.

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We started January last year.

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And now we're quite active in the geospace and getting to be a household name.

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Anything to add to that, Chris?

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Yeah,

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well,

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basically,

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I think it's fairly important to highlight that we have an extensive background in

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market making.

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So all three of us,

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our careers have started in the financial industry,

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mainly focusing on market making financial instruments and derivatives.

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So an extensive knowledge when it comes down to risk management.

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to liquidity provision and well because equity markets and financial markets are

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technologically a little bit more advanced we obviously bring a huge technology

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knowledge that comes with it so you guys are one of the most active guys i've seen

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on the market and always very much enjoyed working with you and things move fast

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get done fast and it's like very to the point so

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What initially brought you to this market?

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Why did you decide to open shop with GEOs?

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I think it's a fascinating story.

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So,

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well,

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effectively,

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what we saw is the market that we're coming from,

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the financial market,

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is,

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let's say,

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a bit more developed in that sense compared to the GEO market.

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You're working already quite efficiently.

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And what we saw specifically in the geo market,

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besides that it's,

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you know,

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everything renewable is just very interesting because there are a lot of changes

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happening.

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It means that there are definitely interesting parts that you can focus on.

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But what we saw...

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as our role within the geo market is just a party that you go to for a good price.

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And, you know, that's it pretty much, right?

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So everything at the backend is efficient.

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We try to automate, simulate to you guys as much as possible.

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So I don't want to do any...

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stupid work in terms of filling in everything so that's really what we try to do

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and I think a key difference between us and well a key let's say a strategic point

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for us is that we're actually rather

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passive in obtaining flow.

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So we're more of the approach that we wait for the flow to come to us.

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So if you want to have a good price or a price in something I can show to you,

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if you don't have anything to sell,

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I'm not going to try to call you and convince you to

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to sell something.

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That,

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of course,

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also means that a big part of the market you don't interact with because some

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parties just operate the other in a different way.

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But what we do see is that a lot of producers,

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large corporates,

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they appreciate and value our approach.

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If you,

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again,

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if you paralyze it where we were before,

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is that it's always like how a market works.

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You have, you know, your top 70% of volume has been traded by your top 10% of kind of people.

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Nevertheless,

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it means that the vast scope of people that are using these geos or are using these

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geos is growing at a rapid pace.

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And

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the size of that market is just going to continue growing for the while,

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at least for the foreseeable future.

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Well,

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coming back to your question,

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what we see,

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we want to kind of give these people the possibility to find a liquid market.

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And

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That's not always the case when the technology isn't there or the marketplace isn't

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there or it's a bit more obscure,

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let's say.

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And I think that's a really good point to make that we want to be this liquidity

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provider in that space that's out there that you can just reach.

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No,

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you get a market,

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fair market,

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a firm market and efficient and a quick market without having to make any more

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noise about it than necessary.

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How much volumes do you guys move in a year?

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Because you sort of,

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I think we actually started roughly around the same time,

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even if I'm not mistaken,

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right?

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You guys had like massive amounts of,

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like you've always been very efficient from what we've seen on our side,

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essentially.

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It's always nice to hear.

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That's what we aim for.

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So I can share that last year,

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which was our first year,

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we traded a bit north of 10 terawatt hours.

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And of course, you do have to keep in mind that we started off in January.

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We're new to the market.

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It's a bilateral market.

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So a big chunk of that year is effectively building relationships,

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you know,

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doing the KYC,

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getting onboarding things done.

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So I can say that,

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I mean,

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this year we've definitely surpassed what we traded last year already.

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And I would expect it to be a multiple of last year's trades.

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Probably important to highlight is also that we don't do any double counting.

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So it's not because we trade with A and B that we say we did $10.

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This is always directly traded with us.

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We are the counterparty.

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So people, when they trade, it's one trade.

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It's not two trades.

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Yeah, it makes sense.

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Yeah,

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I see a lot of numbers with the factor too,

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if you obviously always count all trades on all sides.

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But so that's clean, direct traded with us.

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Nothing, nothing at it.

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All right.

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So do you guys have also taken a look at the REC market as well?

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Or it's mainly been focused on Geo so far?

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Yeah, mainly focused on the Geo.

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Really focused on Geo so far.

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And it's also the case that I would say that we're specifically very sharp.

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in the more generic GEO, so to say.

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So of course,

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if you want to buy,

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for example,

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AIB Grid Connected,

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then we can give you a sharp price.

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I'm pretty confident.

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Whereas due to the way that we are set up, if you come for a very specific niche volume,

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you know, it might be the case that we're not the best price in there.

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And that's also fine.

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That's not necessarily our aim to be the best everywhere because,

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you know,

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coming from our approach,

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we really focus being the best in the more generic things in terms of selling and

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buying specific,

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of course,

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is...

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Not really a problem.

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It's logical also because it's also the way that product has been set up.

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You unfortunately have niche pockets where people with very strong convictions want

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to specifically do certain things.

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And obviously that comes with a price.

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And I think most people are aware of that.

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So that's fine.

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But our focus today is on the more liquid side of the specter,

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which then also allows us to take away that

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you know, the widespread that you might see in other niche pockets.

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I want to leap on the, you used the word conviction.

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So you come to the market, you started a trading firm in January 2024.

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So last year, so you haven't been around for too long.

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But really when it comes to the digital market and these high liquidity areas like

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the AIB hub connected,

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more generic certificates,

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what drew you to the market besides the sort of,

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you know,

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fragmentation and wanting to bring transparency and volumes?

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Because

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A lot of people could look at the market in its current state and opinions vary on

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where it's going.

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So I'm curious from the standpoint of choosing to start a firm,

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NGOs specifically,

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that's something that interests me quite a lot because I imagine you have an

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opinion either way on the market,

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right?

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Well, I mean...

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Having an opinion on the market,

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yeah,

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sure,

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we have a certain opinion and there are things that you can track,

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especially in terms of production on the market currently.

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What drew us to the market as well is just we are coming from a trading background

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and by nature,

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traders are people that are quite entrepreneurial,

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you know,

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be it that you trade for a firm or be it that you trade for yourself.

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So we really wanted to give a go.

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I mean, it's also the first company that I founded or that we founded.

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I think all three of us is the first one.

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So it's also just a really nice challenge to see.

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And especially in a market that,

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as I said,

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you know,

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I think the renewables market is really booming,

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specifically the last 10 years or so.

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And it's just a market that I'd like to be in, to see what is happening there, to see...

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how we can actually add value to the market by being a market maker slash liquidity

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provider,

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right?

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Which is not something I would say that's standard.

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Like a lot of people trade back to back.

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So I think, yeah, those things all add up to...

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the fact that there is a space for us in this market right where we can start and

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and trade from and that's also what we've seen and also the people that we trade

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with what we typically hear is that we are good at what we do we kind of make true

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on our promises in terms of

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You come for a price, I give you a price, and the rest is kind of hassle-free, right?

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We deliver on time, we pay in time.

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The contracting is done fairly quickly.

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Typically, we send you the contract the same day, if not, you know, in the next few days.

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So the KYC process is all, you know, somewhat automated as far as you can do that.

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so it's really there that we saw space for a party like us in this market that made

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us enter it what's interesting though what's something that i'd like to talk to you

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about is that one thing that kind of surprise is not the right word because it is a

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european market of course

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But you have all these unique registries for every single country,

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whereas that's not the case for all of the environmental products.

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But I believe you guys have somewhat of a,

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I'm not sure if solution is the right word,

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but a way to make it easier,

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I believe,

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correct?

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Yeah, exactly.

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Like tell about our side,

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we got into this market because we noticed 30% of producers are not selling their

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geos,

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their residual mix.

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Right.

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And when we started looking into it, we understood it's just, there's too small.

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And like you just mentioned,

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like the local fragmentation,

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the bureaucracy of the registries is quite insane.

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So we thought we'll just build a solution to automate all of that.

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Right.

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Why not?

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And actually,

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the story goes that the first geo deal we ever did was that I went to my friend's

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place who has a solar panel on its roof.

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I had a wine bottle with me and I was like, why aren't you selling these things?

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And he was like, I didn't even know about it.

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So then we sat down with Dal with him and drank the wine and filled out all the

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forms for him and let him sign on the spot.

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And that was our first, actually, how we got into that market.

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I mean,

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we've been in carbon markets for 10 years before,

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but we were very interested how this one works.

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And what we found,

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it's a lot of things we liked and made the entire pivot from carbon market to

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renewable energy from that point.

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All these government registries we discovered, they're pretty much the same.

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They're just a lot of overhead, a lot of compliance.

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They don't have APIs.

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They're very annoying to work with.

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And we were like, but we're in the age of AI.

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We can automate the compliance with AI.

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We can integrate with registries, even if they don't provide APIs, thanks to our technologies.

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And we've been building like this virtual layer on top of the local registries.

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So everybody will be able to

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use these different government registries everywhere without them having to need

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their own accounts.

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So we've had select partners who've been using this access manually essentially,

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but very soon we want to offer it out there.

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Somewhere around the end of summer,

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we're going to approach you guys and say,

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hey,

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here's all our registries.

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Here's where we're integrated.

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Do you want to use these different countries?

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And our goal is to eventually build sort of like,

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I don't know if you heard the term neo-bank,

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right?

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So like all these Revolut,

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Wise and so on,

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they offer you their bank account and you can send money and you do whatever you

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want in their app.

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But underneath, there's a very traditional bank they're basically built on top of.

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So we're kind of doing the same for government registries.

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And our goal is to make sure that you can trade, cancel, use it in any country you want.

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And you don't need to go through all this local compliance pain.

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You just can...

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Use our platform,

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send geos to our virtual accounts and cancel them,

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trade them,

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whatever you want.

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Avoid the import export fees,

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keep the geos in the local country and just pay them when you finally know exactly

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how much you're going to have to send to your buyer.

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I'm keen to learn more about it when the product is finished.

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And just to come back on the way that you guys started,

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so how much new volume have you brought to the market in terms of geos?

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It's hard to say exactly because we haven't kept that specific KPI in mind.

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And we do have existing customers and big utilities who have approached us and

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joined us as well.

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But from gut feeling,

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it's about one third is completely new volumes that have never traded Geos before.

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We currently manage like 1.5 derawatt hours.

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So a third of that around 500 gigawatt hours is definitely new volumes.

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And that's growing very fast.

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The interesting thing about that,

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though,

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is what we discovered is that a lot of countries are breaking AIB rules.

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AIB directive, the Red 2 directive, I think, specifically says... Red 3, actually.

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Red 3, okay.

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specifically says that the producers smaller than 50 kilowatts should be able to

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have easier registration flow for their devices.

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Many countries make it completely impossible for them to register.

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Sweden, in fact, recently just started doing change to even ban them.

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Like they don't want to deal with them because they say it's too much work.

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So basically what's sort of

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stunting our impact a bit is that governments are not following EU directives or

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the registries rather.

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So in many countries, we can only focus on 100 kilowatts or above or 1 megawatt or above.

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In Slovenia, you actually have to pay 15 grand if you want to export your geos.

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It's crazy, right?

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So in Lithuania, they have laws, a prosumer law, which...

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I won't get into too much details,

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but basically it excludes almost everybody that's under like 500 kilowatts.

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In Finland,

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you have to pay basically 500 euros base fee a year,

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which obviously excludes anybody that's like under one megawatt already.

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In addition, you have to get like an audit is an extra couple of hundred euros.

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That was included in that.

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Because I think it's like 250 plus audit or something.

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Yeah, exactly.

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So per device, you know, you rack up fees.

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At the same time, we see a really similar thing in...

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Latvia,

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hopefully we've managed to cause some changes there,

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but there for a while,

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it's been one auditor can only do audits.

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And then everybody has to get audited every five years from this one auditor who

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basically gets to set whatever,

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you know,

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price they want for it.

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So it's been kind of confusing all around.

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You look at this patchwork and you look at the renewable energy directive and you

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think everything's going to be relatively standardized.

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But once you start getting into the details, things start making less and less sense.

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I mean,

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you know,

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there are countries where there's essentially like a guy with an Excel sheet

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managing guarantees of origin for the country,

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right?

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Yes.

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Yeah.

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And the communication around it, the marketing around it is also done very poorly, I would say.

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I mean,

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we all know in most countries,

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people are incentivized to put solar panels on their roofs,

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to have home batteries,

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et cetera,

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et cetera.

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But communication around this unbundling of the energy and then the certificate

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itself seems to have very,

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very,

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very low penetration within,

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you know,

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households I would say and smaller companies and obviously with levels that we see

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now it's maybe not the most important thing but it would be so much easier if it

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would be very clear cut and transparent and obviously a bit more unified because

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this is still Europe and it seems that in many ways we are still not one.

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It's worth bringing the conversation back to,

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you know,

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how the market is structured all together,

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right?

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And you have AIB,

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which is a non-profit based in Belgium or Netherlands,

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I'm not quite sure which.

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But essentially,

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right,

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the EU doesn't prescribe any idea of how these things should work other than a

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high-level sort of technical mandate.

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And then the AIB's role is to find a way to integrate that from a technical perspective.

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And that's how the EECS framework came around.

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But, you know, like...

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There isn't really a responsibility,

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it feels like,

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for anybody to take the lead on marketing or take the lead on making this thing

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feel commercially well understood.

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And I think that's one of the main problems.

[00:18:13]
And you can link that back to the accessibility of the market as well because the

[00:18:18]
AIB don't have really any enforcement mechanism besides barring people from being

[00:18:22]
in the AIB themselves.

[00:18:23]
So you have the EECS rules saying that

[00:18:27]
well, members need to make it cost effective for market participants.

[00:18:31]
But then they also say,

[00:18:32]
well,

[00:18:33]
they should be allowed to charge whatever they want to be commercially viable.

[00:18:36]
So it's like, you know, there is a constant balancing act.

[00:18:40]
And I guess,

[00:18:41]
yeah,

[00:18:41]
that's just the case with anything that's top down government driven because

[00:18:45]
they're never going to have user experience at the forefront of the equation.

[00:18:49]
Speaking of marketing, like if you go outside of the geo bubble,

[00:18:54]
Anybody you speak about and you explain what are geos,

[00:18:58]
they immediately think they're carbon credits.

[00:19:00]
And that's actually quite a big issue because carbon credits reputation,

[00:19:05]
as we know,

[00:19:06]
regardless of what carbon people say,

[00:19:08]
is horrible.

[00:19:09]
The public doesn't actually,

[00:19:11]
I don't know anybody,

[00:19:12]
honestly,

[00:19:13]
from outside of carbon world that supports it.

[00:19:16]
And it's like people are very, very skeptical of its impact.

[00:19:20]
And there's a lot of bad stuff about it.

[00:19:22]
So the first thing you always need to explain that, oh, no, these are not carbon greatest.

[00:19:25]
These are actually regulated.

[00:19:27]
But I distinctly remember one presentation I did on stage here in Estonia.

[00:19:34]
And I was basically talking about Soldera.

[00:19:39]
And in front of me was the Estonian Environmental Ministry Committee, essentially.

[00:19:44]
The guys that should know what are geos, they made the laws about geos.

[00:19:49]
So they were at least included there.

[00:19:51]
And then at the end of the presentation, I got three questions.

[00:19:56]
And all three were like, how do you ensure that these are trustworthy?

[00:20:01]
And I'm like, well, do you trust your local DSO or not?

[00:20:05]
I basically explained to her three times that these are not carbon credits.

[00:20:09]
These are for tracking electricity.

[00:20:12]
And it's completely different.

[00:20:15]
There's nothing in common there.

[00:20:17]
And it's your own grid provider that gives out these certificates and consumes them.

[00:20:23]
It's very logical, actually.

[00:20:24]
Very simple.

[00:20:25]
One megawatt hour goes in.

[00:20:26]
That's one certificate.

[00:20:28]
One megawatt hour goes out.

[00:20:29]
That's using one certificate.

[00:20:31]
We're not the party that ensures the quality.

[00:20:34]
That's the TSO, right?

[00:20:36]
I think that's actually one thing that's very interesting.

[00:20:38]
An interesting difference between financial markets, where you would just trade stocks versus...

[00:20:43]
the geo market where you can actually look at the geo because it's a tracking

[00:20:49]
mechanism nothing else pretty much than that and you can actually zoom in on the

[00:20:54]
specific power plant that produced it and I think what you see being lobbied for as

[00:21:00]
well is to go to a more granular approach probably also will help

[00:21:05]
I think in terms of the geo adoption and the story and the marketing part that you

[00:21:10]
can say about the geos.

[00:21:11]
Of course, the more granular you get, the more it makes intuitive sense.

[00:21:16]
You know, we don't have to have the discussion how granular is good enough, right?

[00:21:21]
I don't think we're going to go to 15-minute geos.

[00:21:24]
That's pretty much as granular as the power market gets currently.

[00:21:27]
But,

[00:21:27]
you know,

[00:21:28]
steps towards a more granular approach will definitely help the marketing of the

[00:21:32]
product,

[00:21:33]
I'd say.

[00:21:33]
I think we just all agree that the up to two hour window is probably not the

[00:21:39]
correct granularity we have right now.

[00:21:41]
Well, in Estonia, we essentially have the system of where you have this 12 month trading period.

[00:21:46]
And after that 12 month trading period,

[00:21:48]
you also have a six month hold period where you can still use it.

[00:21:51]
And that makes it so you can...

[00:21:52]
Like how a very long timeline where you actually,

[00:21:56]
you know,

[00:21:57]
can use it for canceling against the consumption of electricity.

[00:22:01]
And that has never made intuitive sense to us of like why it doesn't work that way.

[00:22:06]
While you do see governments moving at least towards this logic of you produced it

[00:22:12]
in this year,

[00:22:13]
you consume it in this year.

[00:22:15]
I think that makes a lot of intuitive sense at the bare minimum.

[00:22:19]
and even less than a year.

[00:22:21]
But wrecks are half and half, right?

[00:22:23]
So the international wrecks.

[00:22:24]
So you can say that the international wrecks are somewhat ahead of the curve on

[00:22:30]
that one,

[00:22:31]
even,

[00:22:32]
if that makes sense.

[00:22:33]
I guess one of the big...

[00:22:35]
Now that we're on the granularity topic,

[00:22:37]
I mean,

[00:22:37]
the market participants in general are very much against the granular geos because,

[00:22:44]
well,

[00:22:44]
mostly because they don't want to change their business,

[00:22:46]
right?

[00:22:46]
And it's very simple right now.

[00:22:48]
And more, I mean, just...

[00:22:50]
Again,

[00:22:50]
adds another layer of complexity to a market where a lot of people who are using

[00:22:55]
these products are where it's not their main job.

[00:22:59]
So it's an admin layer on top of the total package.

[00:23:05]
And if you're obviously going to have to incentivize to do even more around all

[00:23:10]
this,

[00:23:11]
although it would be good for...

[00:23:13]
the environment.

[00:23:14]
It's the ask, I think, to be very frank.

[00:23:16]
We need to automate it and make it simpler.

[00:23:19]
And this is the other side of it, right?

[00:23:21]
Why is this still so difficult?

[00:23:24]
And how can it not just be,

[00:23:26]
again,

[00:23:26]
as we said,

[00:23:27]
one registry,

[00:23:27]
everything goes into one,

[00:23:29]
you know,

[00:23:29]
simplify things.

[00:23:31]
For years in the financial industry,

[00:23:32]
you've had financial products that were misused by the players on the streets,

[00:23:38]
mainly because of the granularity,

[00:23:40]
because there was this

[00:23:42]
you know, difficulty around it.

[00:23:44]
And the second you take those difficulties away,

[00:23:46]
well,

[00:23:47]
you suddenly see loads more volume,

[00:23:50]
a lot more players,

[00:23:51]
and it becomes a lot more liquid and a lot tighter.

[00:23:54]
So that is the big argument often brought up against granularity.

[00:23:58]
Like, how do you ensure liquidity?

[00:24:00]
And you guys being marketplace makers would be fascinating to hear your thoughts on it.

[00:24:05]
Well, yes, data.

[00:24:06]
Speaking from other markets,

[00:24:07]
you basically have some automated trading tools essentially to manage,

[00:24:11]
let's say,

[00:24:12]
a 15-minute window or one-hour window.

[00:24:14]
So the power market exists.

[00:24:16]
The geos are issued based on the power that is produced.

[00:24:20]
So effectively, all the data is there, right?

[00:24:22]
So if you go towards a more granular approach,

[00:24:25]
then it would just mean that the registries have to add more data.

[00:24:28]
And from us as market participants,

[00:24:30]
It means that we have to digest the data.

[00:24:33]
Digesting data,

[00:24:34]
I would say,

[00:24:35]
being automated,

[00:24:36]
doing things efficient,

[00:24:37]
is kind of up our alley in that sense.

[00:24:40]
But do you guys see that there will be liquidity issues with more granular markets

[00:24:45]
or it actually will just force evolving of the existing plot layers,

[00:24:49]
essentially?

[00:24:50]
Well,

[00:24:50]
I think the more granular approach,

[00:24:53]
what would happen is that it would actually help more renewable energy at the point

[00:24:59]
that there is not enough of it.

[00:25:00]
So you would get very large price differences, like in a power market.

[00:25:05]
Of course, the GO will never be worth less than zero.

[00:25:08]
But effectively,

[00:25:09]
when the sun shines in the Netherlands,

[00:25:11]
the power price dies very quickly below zero because there's plenty of it.

[00:25:16]
How nice is it that those GOs will be virtually worthless,

[00:25:21]
meaning that you actually stimulate the use of GOs and renewable energy,

[00:25:25]
additional renewable energy at times when it's actually not there.

[00:25:29]
And it can be,

[00:25:31]
obviously it won't be solar here,

[00:25:32]
but maybe putting a battery in between then suddenly becomes a little bit more

[00:25:35]
viable.

[00:25:36]
Having said that though,

[00:25:37]
currently,

[00:25:38]
I mean,

[00:25:38]
as is,

[00:25:39]
the GOs are just a small part of the power price that companies pay.

[00:25:43]
Like if I pay 70 euros per megawatt hour and my GO is worth 75 cents,

[00:25:48]
let's say a euro,

[00:25:50]
what does it really add in terms of making a decision whether or not to invest in a

[00:25:54]
new wind plant?

[00:25:55]
Yeah, probably doesn't have a very big impact.

[00:25:57]
The Landesweekern from Iceland did put up a surprising statistic,

[00:26:02]
though,

[00:26:02]
that 7% of their revenues came from geos.

[00:26:06]
That was very surprising for me.

[00:26:07]
They probably made some good trades there, right?

[00:26:10]
I would assume so.

[00:26:10]
I wasn't familiar with that number, but it sounds pretty good.

[00:26:15]
Or they don't make enough of power.

[00:26:17]
But I haven't made enough of that number, so I can't really comment too much about it.

[00:26:20]
Yeah,

[00:26:21]
the granular geos are definitely...

[00:26:24]
I'm interested,

[00:26:25]
do you have any gut feeling yourself when we'll start getting these things actually

[00:26:31]
happening?

[00:26:32]
That's the European Union, right?

[00:26:34]
Those things are decided from the European Commission.

[00:26:37]
So, no.

[00:26:39]
It's a short answer.

[00:26:41]
I'm not sure how long it will take for any changes to take place.

[00:26:45]
No.

[00:26:45]
And on the other side, obviously it sounds so logical.

[00:26:48]
You have all the data.

[00:26:49]
It is there.

[00:26:49]
It shouldn't be that difficult, blah, blah, blah, blah, blah, blah.

[00:26:52]
But in the end,

[00:26:53]
as Kuhn mentioned,

[00:26:54]
rightly so,

[00:26:55]
is that it will have implementations on pricings around these moments when there is

[00:27:00]
plenty and moments when there's not enough,

[00:27:02]
making it a lot more variable,

[00:27:04]
potentially attracting a lot more people who might speculate.

[00:27:07]
That's one.

[00:27:08]
Second part of it is that...

[00:27:10]
I think it's part of the balancing exercise that this whole market is doing between

[00:27:16]
the old style non-renewable versus today the energy mix with a lot of renewable and

[00:27:23]
planting batteries everywhere and it's

[00:27:27]
It's also, it takes time.

[00:27:28]
It's not something you can just,

[00:27:30]
again,

[00:27:31]
it's not a financial public that you just launch and say,

[00:27:33]
okay,

[00:27:33]
here we go,

[00:27:34]
here it is,

[00:27:34]
and let's make it.

[00:27:35]
No, it's physical construction.

[00:27:38]
I think Europe in that point of view is always slow, don't get me wrong.

[00:27:44]
But in this case,

[00:27:45]
it's maybe not always so wrong to do it step by step instead of just saying,

[00:27:50]
as of tomorrow,

[00:27:51]
we could do it.

[00:27:52]
What will the implementation be?

[00:27:55]
Maybe there will be a lot more focus on the geo, I think, at that point.

[00:27:58]
It could be really swinging about.

[00:27:59]
Yeah, well, you always have to.

[00:28:01]
If you invent the phone, you can't start from iPhone.

[00:28:04]
You have to start from Nokia, right?

[00:28:06]
And even earlier.

[00:28:07]
So things have to come step by step.

[00:28:10]
And I think geos are, in general, like in a...

[00:28:15]
You know,

[00:28:15]
there's still a young instrument,

[00:28:17]
like they only got regulated like a bit more than five years ago.

[00:28:21]
So, so with the AIB.

[00:28:23]
Same goes for, you know, electric cars, you know, it's infrastructure.

[00:28:27]
Things have to,

[00:28:28]
you know,

[00:28:28]
you can,

[00:28:28]
you can claim that everybody needs to drive electric fine,

[00:28:31]
but we're going to produce all the electricity.

[00:28:33]
Where are these cars going to charge?

[00:28:35]
What's the technology behind it?

[00:28:37]
How long will they last?

[00:28:37]
I mean, there's loads of questions that come into play.

[00:28:39]
I think the ultimate goal,

[00:28:40]
I think we agree there is that grant granted more granular prices and.

[00:28:45]
You know,

[00:28:45]
shorter windows will be beneficial and helpful for people who really want to be

[00:28:50]
very specific and balance it all out.

[00:28:53]
I mean, there's a commitment that a lot of companies do, right?

[00:28:56]
A lot of commitments around, we want to be green, but we don't want to be legally green.

[00:29:01]
We just want to be real green.

[00:29:03]
We want to have either the windows on site.

[00:29:05]
We want to have the storage of our green PVs on site with batteries.

[00:29:10]
We're replenishing our total fleet,

[00:29:13]
and that needs to be able to load up on all our different venues.

[00:29:17]
So the wheels are in motion, but might not be for tomorrow.

[00:29:22]
Plus, it brings more volatility to the market as well, which is good for getting more actors.

[00:29:29]
It's not bad, it's real, right?

[00:29:31]
Volatility is real.

[00:29:32]
And it's just like players like Faraday,

[00:29:35]
who are market makers,

[00:29:37]
who try to balance out these kind of irregularities.

[00:29:44]
Honestly, I think people that think volatility is bad don't understand how markets work.

[00:29:48]
Yeah.

[00:29:50]
And it brings it back to us, right?

[00:29:52]
I mean, the question that Ollie asked in the beginning is what triggers you in such a market?

[00:29:57]
Well,

[00:29:57]
what does trigger us is that you've got days where prices go up 35%,

[00:30:03]
40%,

[00:30:03]
back down 25%,

[00:30:04]
30%,

[00:30:04]
and then end up pretty much flat somewhere.

[00:30:08]
And very often what we feel, it comes from lack of people who are willing to make markets

[00:30:16]
And that kind of pushes things and it pushes it quite extensively, right?

[00:30:20]
So if you're managing a portfolio of GOs as an energy producer and you suddenly up

[00:30:25]
35% on the day and then you go for lunch and you come back and you realize you're

[00:30:29]
down five.

[00:30:30]
I mean,

[00:30:31]
don't get me wrong,

[00:30:31]
it doesn't move that quickly in their minds either,

[00:30:34]
but it's cool to have a player who's there to give you markets and actually

[00:30:39]
tradable markets,

[00:30:40]
prices that are fun and that you can,

[00:30:42]
you know,

[00:30:44]
lean on in case you say actually I want to capitalize on that move and one or two

[00:30:50]
days later maybe move back in so it kind of as an investment tool and also as a

[00:30:54]
hedging tool towards larger institutions we seem to be quite favorable when it

[00:31:00]
comes down to that

[00:31:02]
Offset some of that risk you're holding.

[00:31:04]
Take back on some of that risk if you're willing.

[00:31:07]
Instead of the discussions that we sometimes have with people is, oh, we have a view.

[00:31:12]
It's going to go somewhere there.

[00:31:14]
And if it goes there, then I'll do that.

[00:31:16]
I'm like, okay, but that means you're not moving for six to eight months probably.

[00:31:20]
Oh, yeah.

[00:31:21]
Okay.

[00:31:22]
How about all the other moves that are happening at the time?

[00:31:26]
Oh, well, we have a strategy it's called then.

[00:31:30]
Well,

[00:31:30]
we're very keen to interact with those strategies and offset some of that risk and

[00:31:37]
take on some of that risk when you feel like it.

[00:31:40]
And instead of having to,

[00:31:41]
you know,

[00:31:42]
feel like you're pushing your product to another guy who's then going to hold on

[00:31:46]
for it forever.

[00:31:47]
That's just not us.

[00:31:48]
Speaking of which, what's your view on the market?

[00:31:51]
That's a good point, right?

[00:31:52]
We have this very,

[00:31:54]
very sweet spot that means that we don't really have to worry too much where it's

[00:32:00]
going.

[00:32:01]
If it dries up, that's a different story.

[00:32:03]
For us, it's the interaction, it's the trading, the constant trading we do all day long.

[00:32:09]
That's what makes our risk model, let's put it that way, efficient.

[00:32:14]
And the more we trade, the more it becomes efficient.

[00:32:17]
It would be,

[00:32:18]
I would say,

[00:32:19]
quite dangerous to say if you take one huge view and act upon that or only that,

[00:32:25]
because I think it's the way to get burned.

[00:32:28]
We feel like the more we can attract people to trade with us,

[00:32:32]
the more that we have a sensation or a feeling of where the market is going at that time.

[00:32:37]
And that will influence the way we would potentially trade.

[00:32:41]
So to generically say, for example, in six months' time, we'll be at two euros again.

[00:32:47]
Some of those discussions we've had with some people at some of the meetings that we've had.

[00:32:53]
It's fine.

[00:32:53]
There needs to be a market.

[00:32:55]
Everybody needs to take on a view.

[00:32:57]
But I think for Faraday,

[00:33:00]
it's a bit precautious to say,

[00:33:03]
well,

[00:33:03]
we're only going to trade one side or one way or one direction.

[00:33:06]
Well, you're a market maker, right?

[00:33:07]
Your main thing is volumes, basically.

[00:33:10]
Somebody told me that geos on average are traded around seven times before they get

[00:33:16]
to cancellation.

[00:33:18]
Do you have any data points on that front?

[00:33:21]
Sounds like new data to me.

[00:33:22]
You can see from the AIB data that bring out every source and how often the geo is transferred.

[00:33:28]
I don't know the exact number by heart, but it can very well be the case.

[00:33:33]
So what you do see is that there are more people active in the market and there's

[00:33:37]
more trading happening.

[00:33:39]
Making the market, you would assume, more efficient as well.

[00:33:43]
Yeah, absolutely.

[00:33:44]
And what is your view on the market?

[00:33:46]
So one of the things that we historically have been seeing is last year,

[00:33:50]
there was quite a significant increase in supply.

[00:33:53]
Well, we've been seeing this last couple of years, but it's been building up.

[00:33:57]
So there's a relatively high amount of just supply looking for a home, essentially.

[00:34:04]
What we do see this year,

[00:34:06]
the counter trend to this is just the fact that so far renewable energy production

[00:34:11]
actually in Europe is down.

[00:34:12]
So we're seeing that affect the incoming supply.

[00:34:15]
The other thing that we're seeing is that demand is still growing.

[00:34:19]
So overall, we're quite optimistic on the supply and demand dynamics right now.

[00:34:23]
Do you have any numbers?

[00:34:24]
Well,

[00:34:26]
I've seen a couple of estimates,

[00:34:28]
trying to estimate the whole year of how this is going to play out.

[00:34:31]
The numbers that we are currently seeing is somewhere between 60 and 80 terawatt

[00:34:39]
hours of less production than last year.

[00:34:42]
And in addition to that, an estimated growth of at least 50 terawatt hours of demand.

[00:34:47]
So those two things together,

[00:34:49]
if you consider that in the bigger picture of there's around 700 something terawatt

[00:34:55]
hours of float essentially in the market,

[00:34:57]
it's a pretty significant chunk of that.

[00:35:00]
I'll be very curious,

[00:35:01]
you know,

[00:35:01]
to compare actually the production numbers that you have,

[00:35:04]
because looking at Anto ourselves,

[00:35:06]
we don't really estimate such a big drop in volume this year.

[00:35:10]
But where I do agree with you is that there is quite a large amount of geo overhang

[00:35:15]
at the moment that essentially will supply the market for some time to come,

[00:35:21]
I'd say.

[00:35:21]
Because if you're talking about 400 to 500 terawatt hours that are currently...

[00:35:28]
left or looking for a home,

[00:35:29]
as you said,

[00:35:30]
Al,

[00:35:30]
you know,

[00:35:30]
there's pretty much half a year's production,

[00:35:33]
roughly.

[00:35:34]
And, you know, a bit more than that, more than half a year's demand, right?

[00:35:38]
So it's interesting to see how that develops and at what point in time,

[00:35:43]
you know,

[00:35:43]
of course,

[00:35:43]
if a trend continues that there's more demand than maybe in,

[00:35:47]
you know,

[00:35:48]
X years from now,

[00:35:49]
you will see a bit more of a balanced market that effectively demand chips away a

[00:35:54]
little bit of that supply.

[00:35:56]
Then again,

[00:35:56]
looking at the targets of the European Union in terms of the amount of renewable

[00:36:01]
energy,

[00:36:02]
the projects that are still ongoing and just the sheer amount of extra supply that

[00:36:08]
will become available every year,

[00:36:09]
especially solar,

[00:36:10]
I believe that's a really big increase.

[00:36:12]
So it's interesting to see how it develops in the next couple of years.

[00:36:15]
And solar especially,

[00:36:16]
I find like really interesting as a case,

[00:36:19]
since even though we do see more production coming online,

[00:36:22]
the solar market feels like it's in this awkward place where the sun is shining and

[00:36:27]
everything looks great,

[00:36:28]
then prices have a tendency of being close to zero,

[00:36:31]
if not negative.

[00:36:33]
So the feeling is that we do also see some curtailment and some cannibalization come with this.

[00:36:38]
So essentially,

[00:36:41]
it really depends on the area,

[00:36:42]
but there are areas in Europe where you can add more solar panels.

[00:36:46]
It does not necessarily translate into more energy production necessarily anymore.

[00:36:51]
That's fair.

[00:36:52]
Did I hear correctly, Al?

[00:36:53]
You said there's 700 terawatt hours over...

[00:36:57]
I think it's between 5% and 7% roughly.

[00:37:00]
It fluctuates.

[00:37:02]
And there's a methodological difference as well.

[00:37:05]
So one way you can look at it is people can also be holding supply.

[00:37:10]
Essentially,

[00:37:11]
even though we produce every month,

[00:37:13]
we don't necessarily cancel for the consumption every month.

[00:37:16]
So what you do end up seeing in the market is also there are these periods where

[00:37:19]
cancellations go up.

[00:37:21]
And then we see the floating supply go down significantly.

[00:37:24]
Well,

[00:37:25]
at the same time,

[00:37:25]
you can't assume that every single megawatt hour on the market that isn't canceled

[00:37:29]
is necessarily,

[00:37:30]
you know,

[00:37:31]
actually trying to find a new home.

[00:37:32]
But these are like rough numbers.

[00:37:34]
You mentioned that the production is reduced this year by hundreds.

[00:37:40]
Yeah, somewhere between 60 to 80.

[00:37:43]
At the historical float, I remember you had that as well.

[00:37:46]
So we could actually compare how it's been moving, if I'm not mistaken.

[00:37:50]
Yeah, I have a more, I guess a more conceptual question.

[00:37:53]
And forgive me for making a crude analogy to financial markets,

[00:37:57]
given you guys are both,

[00:37:58]
you know,

[00:37:59]
you come from financial backgrounds,

[00:38:00]
but...

[00:38:01]
It feels to me like there's two kind of places where data to make insights into a

[00:38:07]
market come from.

[00:38:08]
And that's kind of the underlying asset.

[00:38:10]
So in the case of equities, you're looking at the performance of the company.

[00:38:14]
And in the case of like a commodity,

[00:38:15]
like an environmental commodity,

[00:38:16]
you're looking at production data and the discrepancy between issuance and

[00:38:20]
productions and stuff like that.

[00:38:23]
But then you've also got data on sort of market participation and participants.

[00:38:27]
And,

[00:38:28]
you know,

[00:38:28]
there's a particularly spicy day in the office a couple of days ago when prices

[00:38:32]
were surging.

[00:38:32]
And there was kind of,

[00:38:33]
it almost feels like,

[00:38:34]
in a sense,

[00:38:35]
when you're in that conversation,

[00:38:36]
a little bit like a conspiracy,

[00:38:37]
like who's doing what?

[00:38:39]
I was wondering as a trader,

[00:38:41]
you know,

[00:38:41]
or a market maker in your case,

[00:38:43]
how much of the job is having your ear to the ground and trying to work out what

[00:38:46]
other people are doing?

[00:38:48]
You know,

[00:38:48]
trying to find data on that as opposed to finding data on the underlying market

[00:38:51]
itself.

[00:38:52]
And does that question relate to timeframes in terms of short-term decisions and

[00:38:57]
long-term decisions?

[00:38:58]
That's a good question.

[00:39:00]
I mean,

[00:39:01]
I think being a trader and trading in general,

[00:39:05]
regardless of the product or the market,

[00:39:07]
is about developing a certain case based on several factors.

[00:39:14]
And there are always unknowns.

[00:39:16]
There are known unknowns, so to say, and there are unknown unknowns.

[00:39:20]
So there will be things that you won't ever be able to explain because you cannot

[00:39:26]
see the whole market,

[00:39:27]
right?

[00:39:27]
Because it's so complex.

[00:39:29]
And I remember when I was a trader,

[00:39:31]
people would ask me,

[00:39:32]
like,

[00:39:32]
what's the hardest thing about your job?

[00:39:34]
And the hardest thing I said is always that at the end of the day,

[00:39:37]
you never do your job right,

[00:39:38]
right?

[00:39:39]
Because you're never, it's only a very rare occasion that you can sell the high or buy the low.

[00:39:44]
So there's always something that you can do better.

[00:39:48]
And effectively, that's pretty much every market that you'd be active on.

[00:39:53]
If there's a market that that's the case,

[00:39:55]
I'd be very eager to know and eager to join that market.

[00:40:00]
It's effectively, yeah, you're working with a lot of unknown.

[00:40:03]
So it's only, you know, it can take some time to actually have your analysis validated.

[00:40:09]
And sometimes you're correct and you can still lose money, right?

[00:40:13]
And sometimes you're wrong and you make money.

[00:40:15]
So that is the life of a trader, so to say.

[00:40:18]
When it comes down to information,

[00:40:20]
it's always important to understand,

[00:40:24]
first of all,

[00:40:25]
who are the actors within the environment that you're playing?

[00:40:29]
And what will their reaction be to this kind of information?

[00:40:31]
And I think your comparison with the whole pizza thing is amazing.

[00:40:35]
Because let's say eight, nine years ago, a lot of people would not have cared that much.

[00:40:44]
even if that information came out.

[00:40:46]
But if you look at financial markets,

[00:40:49]
thanks to the Robinhoods of this world,

[00:40:51]
we're looking at retail involvement up north of 30% of volume.

[00:40:57]
So if they happen to be,

[00:41:00]
and if you want to,

[00:41:00]
and this is a bit of a not nice thing to do,

[00:41:03]
but if you want to classify smart money,

[00:41:05]
quick money and dumb money,

[00:41:08]
If that dumb money,

[00:41:09]
I'm not saying that all retail are obviously dumb,

[00:41:12]
but unfortunately in these markets,

[00:41:15]
you do have a big boat that can move ship quite quickly and do totally irrational

[00:41:23]
things.

[00:41:24]
And I think one of the nice things we've seen in financial markets in the last

[00:41:27]
three years is the real impact,

[00:41:30]
is that when people are selling,

[00:41:31]
they're selling off in chunks.

[00:41:33]
They don't hold.

[00:41:35]
You have this real quick reversions because they come back in.

[00:41:39]
So they behave in a different way,

[00:41:41]
meaning that having your ear to the ground,

[00:41:44]
using information,

[00:41:46]
It's for you to understand what is that information going to do with the market

[00:41:51]
that I am acting in.

[00:41:52]
And if you've understood that, then yeah, then information becomes valuable.

[00:41:59]
I think that back to the question in that,

[00:42:02]
you know,

[00:42:03]
you have market infrastructure data and data.

[00:42:06]
linking that to retail participation in financial markets,

[00:42:09]
for example,

[00:42:10]
you see people starting to clock on to the fact that there's,

[00:42:13]
you know,

[00:42:13]
incredibly high short interest in a particular stock,

[00:42:16]
for example,

[00:42:17]
or that there's a large amount of trading volume that's happening off exchange and

[00:42:21]
happening in a dark pool.

[00:42:22]
And people start asking questions about the actual infrastructure of the market and

[00:42:26]
using that to inform their

[00:42:28]
their trading decisions.

[00:42:29]
Do you see any parallels in the geo market in terms of looking at how actors are

[00:42:34]
behaving and looking at how the complexity of the market is starting to sort of

[00:42:38]
form a topography and then being like,

[00:42:40]
okay,

[00:42:40]
because I'm seeing this pattern here,

[00:42:42]
that might inform how I act as opposed to purely looking at stuff like production

[00:42:46]
data.

[00:42:46]
If you really want to compare with what we see in the geo space for now is that

[00:42:51]
there are probably just not enough people who trade enough volume

[00:42:57]
There's a lot of people who use this once a year, once every six months.

[00:43:03]
The amount of people that's really active,

[00:43:05]
I think that is one of the things that is kind of important to keep in the back of

[00:43:10]
your head.

[00:43:11]
That it would be great if more people traded more often and if the smaller chunks

[00:43:18]
get spread out more,

[00:43:20]
trade monthly,

[00:43:21]
even weekly.

[00:43:22]
I know it sounds like a nightmare, but...

[00:43:25]
That's why you have us.

[00:43:27]
That is something that could really help because there is a bottleneck there still.

[00:43:31]
And that's also why we think it's great that Faraday has joined this kind of this

[00:43:37]
market because it gives an out,

[00:43:39]
gives liquidity.

[00:43:40]
Basically, it gives air to a market that could get really quickly congested.

[00:43:46]
Yeah, I agree.

[00:43:46]
I mean, it's always been very nice.

[00:43:48]
I think like Soldera and Faraday work very well together, right?

[00:43:51]
Because you guys always provide liquidity and we help these players aggregate together.

[00:43:57]
So they even have the volumes to do monthly trades, essentially.

[00:44:00]
Because if you're like a one megawatt hour producer,

[00:44:03]
you simply don't have the volumes to participate even properly.

[00:44:07]
But the podcast has been going on pretty long.

[00:44:09]
So I think we need to start wrapping up.

[00:44:11]
So I'll just ask one last question.

[00:44:14]
What happened last week?

[00:44:15]
We all know that the week of 16th to 20th of June,

[00:44:19]
we had a lot of trading,

[00:44:20]
a lot of activity,

[00:44:21]
prices almost 2x.

[00:44:24]
So any thoughts or indications there?

[00:44:27]
it's not an easy one to say yeah there no i i think there's just a lot of buyers

[00:44:32]
that's uh that's the that's the short answer yeah you know this should squeeze on

[00:44:38]
so that's your answer

[00:44:40]
I'll leave that to you.

[00:44:42]
Yeah, we saw a lot of buyers as well.

[00:44:45]
And this week you saw, especially yesterday or two days ago, price comes off quite a bit again.

[00:44:51]
And currently we're somewhat in between those levels.

[00:44:54]
So interesting to see how it develops.

[00:44:57]
I mean, that kind of goes into what Chris just mentioned, right?

[00:45:02]
In terms of how the way it comes and what it does at specific points in time.

[00:45:07]
So that's what you saw happening last week.

[00:45:10]
Yeah, it makes a lot of sense.

[00:45:12]
I guess it's a company,

[00:45:14]
you maybe have more information than us,

[00:45:16]
but I guess it's a combination of a short squeeze and German reporting period

[00:45:22]
coming up essentially.

[00:45:23]
So that's our thesis on it, but.

[00:45:26]
I'm not sure how you define a short squeeze per se,

[00:45:28]
but from a financial market perspective,

[00:45:30]
it's definitely not the case.

[00:45:32]
So, you know, as I said, we see there's plenty of geos to go around.

[00:45:36]
So,

[00:45:37]
you know,

[00:45:37]
in order for there to be a short squeeze,

[00:45:39]
you would have to have a lot less supply,

[00:45:42]
I'd say.

[00:45:42]
I'd more keep it on,

[00:45:45]
you know,

[00:45:46]
quite a decent amount of buying in a relatively short period of time.

[00:45:49]
Makes sense.

[00:45:50]
All right, guys.

[00:45:50]
Yeah, thank you so much.

[00:45:52]
Thanks for your time.