An introduction to a Baringa Blog Series:
Back Office Excellence in Energy Trading
Efficient and reliable Back Office operations are essential for the success of every trading company allowing Front Office to focus on market facing activities and serving customers in a professional way. Back Office departments are often faced with time and cost pressure resulting in an increasing need to strive for automation and excellence in daily operations. But what does ‘Back Office Excellence in Energy Trading’ actually mean?
The energy transition impacts global trading activities, both in terms of increasing trading volumes as well as complexity of traded products. This directly effects daily operations in the back office and trading related support functions (‘Back Office’).
With the presence of new and more structured products, geographical expansion and increasing trading activities, Back Office departments need to consider:
- adapting and improving existing processes and procedures,
- re-aligning the operating model and
- digitising daily operations (e.g. by leveraging new systems and tools) along the trade capture to payment process.
Based on the respective business model, internal and external customer needs and the digital maturity of the organisation, ‘Back Office Excellence’ can be addressed across a combination of the following three elements:
(1) Finding the right balance between automation and customer centric processes
Especially in more standardised exchange trading, most of the ‘classic’ tasks of Back Office should be harmonized and automated, leading to a requirement to establish Back Office as a lean and streamlined function.
However, in a business model focussed on ambitious growth, driven by more complex, non-standard OTC trading and global expansion (e.g. VPPs, PPAs), the need to adapt Back Office operations will increase dramatically and will continuously challenge the ways of working. An agile and flexible design, approval and implementation process for new products is one of the key success factors to support growth.
(2) Re-aligning the operating model on core values and drivers
The wide range of functions and services typically provided by Back Office along the trade capture to payment process, impacts the overall operating model. The variety of operational tasks and a wide range of low and high complexity tasks requires a diverse skillset across the team. In addition, peak times (e.g. month end closing) need to be managed properly. The operating model therefore needs to support appropriate flexibility and adaptability to changing business needs and regulatory requirements.
The harmonization, automation and consolidation of standardized processes (e.g. exchange business) into one team, will enable the processing of high trading volumes at pace and quality. At the same time more complex tasks will be carved out to ‘specialist teams’ that will take the time and harvest their specialist knowledge to take care of processes that are driven by deal complexity and high profit margin.
To make the Back Office operating model a success it is key to invest in the right system and process expertise. While automation and simplification seemed to be the answer for a long time, the imminent energy transition requires the development of core capabilities and expertise in certain areas in Back Office.
(3) Digitising Back Office operations
It is time for Back Office to actively participate in shaping the relevant elements of the IT strategy and roadmap to gather value from ongoing digitalisation programmes. Trading architectures are adapting with new business and products emerging. Back Office needs to be clear on specific business requirements, ask for appropriate system coverage to be in a position to provide reliable services in line with business growth ambitions.
New digital opportunities like process automation, reconciliation and settlement management tools will help to make Back Office processes less manual, more time and cost efficient as well as accurate. In addition, with the usage of interfaces between front and back end systems the process outcomes will become more transparent and valuable for Front Office. One example is the usage of customer portals where Back Office information shared with customers can unlock new opportunities and improve customer experiences.
The remianing blogs in the series are intended to screen the challenges and opportunities for more efficient Back Office operations from a process, system and organisational perspective.
Securing access to critical minerals for the energy transition
We explore how private sector actors can proactively secure access to the critical minerals needed for the energy transition.Read more
Recent and future evolution of the cPPA market in Europe
Having supported corporates and developers in PPA deals across Europe, we have seen major changes in this market over the past few years and we reflect on how the market is likely to evolve in the future.Read more
Australia's Wholesale Electricity Market developments: what are the opportunities for investors?
Baringa’s WEM Reference Case provides an independent perspective on the demand and supply-side changes in the WEM.Read more
What will enable the development of Australia’s offshore wind industry?
We explore the factors needed to foster the build out based on our quarterly reference case.Read more