Hedge fund manager Marcel Melis ignores stock charts, commodities reports and bond prices as he sips his morning coffee. All his attention is focused on one thing: the weather. Melis analyzes forecasts for areas from the snowcapped mountains of Norway to the beaches of Spain's Costa del Sol to predict changes in demand for power and gas. The founder of Energy Capital Management BV, which has raised $60 million and started trading in October, targets returns of 25 to 30 percent.
The number of hedge funds with more than a quarter of their capital in European energy jumped fivefold to 50 last year as German utilities began releasing data on plant outages, helping traders forecast supply in the region's largest market, according to Energy Hedge Fund Center LLC. The value of derivatives traded on the European Energy Exchange in Germany more than doubled to 58.75 billion euros ($78.08 billion). European power prices are on the rise after falling to records following the mildest winter in more than 100 years. Germany's third-quarter power contract has been the focus of traders ever since April 11, when the U.K.'s Met Office said the summer in northwest Europe would probably be hotter than average, boosting demand for power and increasing the risk of price spikes. The contract rose as high as 49.30 euros a megawatt hour on May 18, after dropping to 36.40 in February. It closed at 44.25 euros on June 14.