Trading in a renewable energy market
Market demand for renewable energy continues to grow due to governmental programs, increasing corporate initiatives and “prosumers” choosing green energy. This not only causes changes in how electricity is produced, it also significantly impacts how energy is traded. The intermittent nature of renewable resources has caused a move to short-term trading and, decarbonization efforts are driving demand for tradable certificates to offset CO2 emissions or to prove electricity was generated by a renewable source. As a result, wholesale market participants are facing increasing trade volumes at higher speeds, which necessitates automation and market integration. Are you equipped for trading in a renewable energy market?
The world’s energy system is changing. For the first time, renewables generated more electricity than fossil fuels across the European Union, due to new solar and wind power projects. Power systems have Intermittent Renewable Energy Sources (IRES) as an increasing percentage of their energy mix, which is impacting the wholesale power market. With outputs from wind and solar being less predictable than thermal generators this can lead to either an abundance of generated power at low prices (even negative when the grid can’t absorb the excess) or exactly the opposite, when there is less wind or sunshine than forecasted and thermal generators are challenged to fill the gap. Add to this the impact of localized generation on transmission networks and it’s clear to see how markets become more volatile as renewable energy supply increases. In the process, valuation of forward generation capacity also becomes uncertain, favoring short-term deal making, while exposure to imbalance cost may increase.
In order to successfully operate in this new market environment, a modern Energy Trading and Risk Management (ETRM) system must be employed.. Let’s take a further look at some of the areas driven by the proliferation of renewables.
Distributed generation: A balancing act
One aspect of the energy transition is characterized by a shift from traditional centralized generation to distributed generation, caused by the deployment of renewables such as solar, wind and even batteries. This introduces challenges for transmission operators and new responsibilities for electricity providers. As a result, they must engage in sophisticated energy contracting and trading transactions to serve their load efficiently, profitably and in a balanced fashion on a near real-time basis. For the ETRM system this means having the ability to model both simple and complex business processes.
Parsing for profit: Portfolio Management
Inefficiencies in the market typically offer opportunities for trading, but at the same time, market price volatility also may introduce a greater exposure to risk. In a highly competitive market with frequently dropping prices (due to large quantities of renewable supply during the day with almost no variable cost) energy suppliers must be on top of their game when it comes to sourcing and serving load to achieve reasonable margins. Deploying next-generation technology with a state-of-the-art ETRM system, such as TRMTracker, will optimize operations by helping to do the right things and do them right. That means when managing a power portfolio, the portfolio manager must be able to ‘parse’ it; analyse and discover implications by slicing and dicing the data until arriving at the right level of detail for analysis.
Intraday Markets: Real money in real time markets
The emergence of renewable electricity generation has caused a shift to short-term and intraday trading. Traders use the intraday market to optimize their position to reduce risks associated with unexpected imbalance prices charged by the TSOs, while others see the intraday market as an important tool for their portfolio management. Renewable generation is less predictable, which introduces volatility, where positions may change rapidly, and decisions are based on multiple information sources. To manage exposures and capitalize on opportunities, a live, real-time system with automated market connections to the spot markets is required.
Decarbonization: The Back Office is no longer an afterthought
Organizations are increasingly looking to reduce their environmental footprint, which leads to the direct purchase from renewable generators. As a result, power purchase agreements with wind farms provide an important growth opportunity and subsequently lead to increased volumes of Guarantee of Origin certificates (GoO). Besides, GoOs are tradable products, allowing organizations to achieve environmental targets and objectives. A next-generation ETRM system enables the capture and settlement of more complex structured products for market differentiation and cross border operations. At the same time, the increasing volumes of GoO cancellations and customer demands have awakened both risk managers and legal departments to pay attention to the associated risk in GoO deals. To manage this operational risk, a ‘new era’ ETRM enables to automate the end-to-end GoO/REC tracking and management of processes from generation to assignment and retirement or expiration.
Digitalization: Integration and Automation
In this era of renewable energy and volatile commodity markets, relying on traditional end-of-day processes is just not good enough. Increasing trading volumes and velocity introduces an environment where time is money that can only be successfully navigated with the help of automation and solid integration with other systems and markets. A modern ETRM system relies on an architecture that has embedded middle-ware technology that supports ease-of-integration including market-connections. Additionally, enterprises need innovative ways to optimize workflows. The combination of ease-of-integration and a highly configurable ETRM system, allows to first “digitize” by being able to capture all required information, and subsequently apply rule-based automation of mundane tasks.
Pioneering Technology Leader
With Hitachi ABB Power Grids as a partner, companies can reinvent themselves, transforming traditional business models and accelerating growth while trading in a renewable energy market. As a pioneering technology leader in the new ETRM era, we co-create value together with our customers and leverage our 21st?century platform to provide them with their desired outcomes.
Learn more: Energy Markets Group (hitachiabb-powergrids.com)