Energy broker

The term "broker" is defined differently in the energy market. In general, a broker is an intermediary. In the energy market, for example, they broker electricity or gas.

We distinguish between two types of brokers here:
Trading brokers operate in the wholesale energy market: they act as intermediaries in bilateral trading, also known as over-the-counter (OTC) trading, between buyers and sellers of energy. 

In the end customer market, energy brokers advise companies and private customers on their electricity or gas procurement.

Here is an overview of the different meanings of the term broker, depending on who uses it:

• Regulatory: The Federal Network Agency uses the terms broker or energy broker to refer to wholesale trading. It usually refers to international companies such as ICAP, GFI, Tullet Prebon, and Griffin.
• Wholesale and exchange: In wholesale, the definition of the term coincides with its regulatory meaning. A wholesale energy broker is an intermediary who brokers energy products such as electricity, gas, or coal between buyers and sellers.
• Small and medium-sized businesses and end consumers: Here, the term "energy broker" is often used instead of "retail broker" or "procurement consultant." Procurement consultants help energy-intensive companies, for example, navigate the jungle of providers and tariffs.

The example of electricity trading shows that brokers play an important role in energy trading: while only around a quarter of the electricity traded each day is traded on the EEX and EPEX Spot exchanges, three quarters is traded bilaterally (OTC). Both the spot market and the futures market feature a large number of traders who want to offer or purchase quantities. It is almost impossible for individual traders or companies to maintain an overview and stay in contact with as many other energy traders as possible. That is why they use brokers as intermediaries.

Brokers bring together the volumes of many market participants. They offer their customers access to their energy pools and forward prices, offers, inquiries, or orders to other market participants. In this way, they act as intermediaries and facilitate the conclusion of bilateral contracts between producers, trading companies, suppliers, or banks. This works, for example, via voice broking, where the broker can be heard directly by the trader via microphone and loudspeaker and passes on current offers. In addition, many brokers offer digital platforms or hybrid solutions.

The most important products include electricity, gas, coal, crude oil, refined petroleum products, and emission rights.

While brokers act as intermediaries and thus provide liquidity, traders themselves are the principals in a transaction. Bilateral trading takes place outside the power exchanges and is less regulated. Nevertheless, certain market rules, conventions, and pre-agreed terms and conditions apply to the services provided by brokers. One of the most important legal foundations is the EU Regulation on Markets in Financial Instruments (MiFIR). It contains comprehensive rules for trading in financial instruments and reporting requirements. Above all, this ensures transparency.

Trading via a broker or broker platform has many advantages for market participants. These include:

• Brokers ensure liquidity and price discovery in the market.
• They offer all market participants the same open and non-discriminatory access to the market.
• Brokers use framework agreements and contracts. This allows market participants to participate safely in market activities.
• Brokers offer many additional services related to trading and risk management. These include market data and analyses, as well as technical solutions and consulting.

Brokers communicate prices and bids via various media. These include the telephone, messenger services, electronic screens, matching systems, and electronic trading platforms.

Unlike traders who trade volumes themselves, wholesale market brokers do not execute customer orders. They do not take positions themselves and do not hedge transactions themselves using risk components. Nor do they prepare statements or offer clearing services. They forward completed or prospective transactions to the two parties involved.

The broker publishes prices and volumes. In the case of verbally agreed transactions, these must be confirmed before the trade is concluded. For products with an electronic order book, prices and volumes are usually fixed and traded without further communication.

Once the trading price, volume, and terms have been agreed upon, the broker discloses the names of the counterparties. The two parties then confirm the agreement in writing and the broker withdraws from the transaction. The energy broker then invoices its brokerage fee, which is usually based on the megawatt hours traded. The execution fee or brokerage commission must be fair, transparent, and non-discriminatory. It is agreed in advance between the dealer and the broker for each product, often with volume discounts or other fee discounts based on market-making activities.

Many wholesale marketplaces and energy brokers offer their own approved trading platforms. Producers and consumers can use these platforms to independently set the quantities they want to buy or sell. This gives energy traders direct access to current wholesale prices and the products and quantities on offer.

Trading via platforms is subject to specific rules, for example with regard to access, onboarding, conduct, transparency, and reporting. These include monitoring and control measures designed primarily to prevent issues such as market abuse and money laundering. Other regulations govern conduct with regard to the payment of invoices and financial reporting.

In addition to brokers in energy trading, the terms energy broker, electricity broker, and gas broker are also used in the field of energy procurement for companies and even for energy purchases by private customers. An energy broker is an independent intermediary between sellers and buyers: they broker contracts and often also provide online platforms. The aim is to find the right supply contract for each customer, taking into account market prices, risks, and individual consumption patterns. The broker compares different energy suppliers in order to achieve cost advantages.

Energy prices fluctuate greatly, mainly due to the energy transition, the integration of renewable energies, and geopolitical influences. These developments make the market complex and unpredictable.

An energy broker provides transparency. For many companies, this makes them a crucial partner in modern energy management.

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What services do energy brokers offer companies?

A modern energy broker or energy service provider offers much more than just comparing electricity rates. Typical services include:

Energy purchasing and procurement strategy:

Brokers support business customers in procuring electricity and gas. They draw up professional tenders, obtain quotes from various energy suppliers, and negotiate terms and conditions. They also develop individual procurement strategies based on market opportunities and the customer's risk appetite. As part of contract management, they monitor terms, contract options, and price commitments so that they can react in a timely manner.

Market analysis, energy price optimization, and energy market access:

Modern brokers use digital tools for monitoring, consumption analysis, and demand assessment.
This allows energy consumption to be optimized and potential savings to be identified.

A key advantage is energy price optimization. Brokers have direct access to the energy market and can therefore offer terms that would be unattainable for individual companies.

Energy portfolio management and risk management:

Mit einem aktiven Energieportfoliomanagement steuert der Broker Preisrisiken, verteilt Einkäufe auf verschiedene Zeiträume und nutzt Hedging, um Preisschwankungen abzusichern. So wird Energie zu einem planbaren Kostenfaktor statt zu einem Risiko.

Working with an energy broker follows a clear process:

• Analysis of the initial situation: First, the current energy supply is examined. What contracts are in place? How high is consumption? Are there any risks?
• Creation of an individual procurement strategy: Based on this data, the broker develops a strategy for cost optimization and risk management. Market forecasts and energy price analyses are taken into account.
• Tendering and supplier selection: The broker compares energy suppliers. They evaluate offers based on price, term, flexibility, and service quality. The goal is a transparent comparison.
• Conclusion of contract and implementation: After selecting the best offer, the broker accompanies the contract negotiations and ensures smooth processes during the change or renewal.
• Ongoing support and monitoring: Many brokers then take over monitoring and provide regular information on price developments on the spot market or futures market. This keeps customers informed about market trends and potential savings.

Independent advice:

An energy broker works independently of energy suppliers and acts in the interests of its customers. It is therefore a partner on equal terms.

Market transparency:

Thanks to its access to the energy market, the broker is familiar with prices and developments. This market transparency enables well-informed decisions to be made.

Cost optimization:

Energy costs can often be reduced through targeted energy price optimization and the use of wholesale conditions.

Risk management

Professional risk management protects companies from price spikes. Hedging strategies can be used to partially hedge future prices.

Time and resource savings

The broker takes on complex tasks such as tender management or contract management, saving companies time and internal capacity.

When hiring an energy broker, there are a few points to consider:

1. Independence: Only an independent broker can provide truly objective advice. Avoid brokers who are tied to specific providers.
2. Experience and references: Reputable brokers can provide references from similar industries—for example, from industrial companies, large customers, or municipal utilities.
3. Remuneration and transparency: Clarify whether the broker works on a performance-related basis or charges a fixed fee. All costs should be transparent and comprehensible.
4. Expertise and tools: Look for brokers who use modern software for monitoring, contract management, and market analysis.
5. Holistic approach: A good broker thinks not only about prices, but also about long-term procurement strategies, sustainability, and energy management.
6. Costs and fees: Costs are based on the scope of services. Many brokers work on a performance-based basis, meaning they receive a commission if their work results in savings. Others charge a fixed fee, especially for complex energy portfolio management or tender management.

An electricity broker is an energy broker who specializes in electricity procurement. They monitor the electricity market, analyze developments on the spot market and futures market, and advise customers on the optimal time to purchase.

Who benefits from an electricity broker?

• Energy-intensive companies with high energy consumption
• Companies with fluctuating energy requirements
• Large consumers with multiple locations
• Municipal utilities and public utilities
• Medium-sized companies that want to actively manage their energy costs

A gas broker handles gas procurement on the gas market. They conduct tenders, compare suppliers, and negotiate supply contracts. In doing so, they use up-to-date information from European gas exchanges and trading hubs to achieve optimal purchase prices. Gas brokers also provide support with risk management and help to draft long-term contracts with flexible volume regulations.

Who can benefit from a gas broker?

• A gas broker is particularly interesting for companies with high heat requirements, such as energy-intensive industrial companies, manufacturing plants, or municipal facilities.
• Hotels, data centers, and commercial enterprises can also benefit if they set up their energy portfolio management professionally.

An electricity broker or gas broker focuses on pricing and procurement—in other words, purchasing energy on the market. An energy consultant, on the other hand, analyzes consumption and helps improve energy efficiency. The two often work hand in hand: the energy consultant reduces demand, while the energy broker secures lower purchase prices. Together, they provide sustainable and cost-effective energy consulting that offers comprehensive support to companies.

When looking for a broker, you first need to distinguish between the different types of brokers. Wholesale brokers act as intermediaries for energy or certificates in bilateral over-the-counter trading. Retail brokers advise companies or private customers on choosing the right energy provider.

This table provides an overview:

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