Wild weather is roiling electricity prices. This startup is looking to help.

ElectronX’s planned debut comes as the increasing use of cleaner energy sources has made it harder to forecast energy costs because of the intermittent nature of wind and solar power. (Pixabay)
ElectronX’s planned debut comes as the increasing use of cleaner energy sources has made it harder to forecast energy costs because of the intermittent nature of wind and solar power. (Pixabay)

Summary

ElectronX has raised $15 million from investors led by former Google CEO Eric Schmidt’s venture-capital firm.

A startup is aiming to build a marketplace where companies can shield themselves from the wild price volatility associated with intermittent wind and solar power, along with extreme weather events such as the recent Texas heat waves.

ElectronX has raised a $15 million seed round from investors led by former Google CEO Eric Schmidt’s venture-capital firm, Innovation Endeavors. The startup, which has previously kept out of the public eye, is set to announce the funding round later Wednesday.

Based in Chicago, ElectronX is applying for a license from the Commodity Futures Trading Commission to run a futures exchange. If approved, ElectronX would be taking on two large incumbents that already operate electricity futures markets: Intercontinental Exchange, or ICE, and Germany’s Deutsche Börse, which offers U.S. electricity futures through its Nodal Exchange unit.

Electricity futures are financial contracts that allow traders to bet on swings in power prices. Businesses such as utilities can also use them to hedge against the risk of price volatility.

ElectronX’s planned debut comes as the increasing use of cleaner energy sources has made it harder to forecast energy costs because of the intermittent nature of wind and solar power. Strong winds can send power prices plummeting while wind farms create a glut of electricity. The opposite might happen if the weather shifts. In 2023, a record 23% of U.S. electricity demand was supplied by renewable sources, according to BloombergNEF.

“The grid transition has massively changed the power mix in the U.S., and it’s caused a lot of intermittent stability issues," said Sam Tegel, chief executive of ElectronX.

Meanwhile, extreme weather events—which scientists expect to grow more frequent with climate change—are also roiling energy markets. A freak winter storm that left millions of Texas residents without electricity in February 2021 cost power companies more than $10 billion, according to S&P Global Market Intelligence. On the evening of May 8, wholesale electricity prices in the Dallas area skyrocketed to just under $5,000 per megawatt-hour from about $142 in two hours amid a heat wave and power-plant outages, according to data provider GridStatus.io.

ElectronX’s first futures contracts will be tied to electricity prices in Texas, and it will eventually list contracts tied to power prices at locations nationwide, Tegel said.

Unlike its larger rivals, ElectronX plans to offer contracts tied to the hourly price of electricity. The startup says its hourly contracts will allow customers to have a more fine-tuned hedging tool than they can find at ICE or Nodal Exchange, whose electricity futures are generally based on the average price of power over a full day or month.

ElectronX says its target customers include generators of wind and solar power, operators of large-scale batteries, and data centers whose hunger for electricity is expected to grow as artificial-intelligence applications gobble up ever more energy.

The startup aims to serve smaller customers as well as the institutional-size firms that trade on ICE and Nodal Exchange. Unlike the incumbents, ElectronX plans to offer direct access to its market without requiring customers to use brokers, known as futures commission merchants, that hold collateral for traders on traditional futures exchanges.

The direct-access model could make it simpler for ElectronX to bring aboard new customers. But it also means that, at least initially, ElectronX won’t be able to offer leveraged trading, in which a trader uses a relatively small amount of money to place a large bet.

ElectronX’s launch could still be many months away because of the time needed to win regulatory approval for its exchange and clearinghouse.

The startup was founded in 2022 by Philip Krim, the former CEO of mattress seller Casper Sleep, who has since become a climate-tech investor, and former power trader Evan Caron. Tegel joined as CEO in 2023. A veteran of electronic trading, Tegel previously worked at high-speed trading firm Jump Trading and hedge fund Millennium Management.

Innovation Endeavors said it put up $10 million for ElectronX’s funding round. Schmidt’s firm specializes in early-stage investments. It has previously placed bets on Uber Technologies and SoFi Technologies, and it describes climate as one of its focus areas.

Schmidt, a founding partner of Innovation Endeavors, was CEO of Google from 2001 to 2011, before it was restructured and renamed Alphabet. During his time at the search giant, Google stepped up the use of renewable energy to power its data centers as part of an effort to become carbon-neutral.

Write to Alexander Osipovich at alexo@wsj.com

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