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Power Play: the benefits of planning and portfolio management

By Hugo Stappers
01-10-2021 | 5 min read

New market designs were introduced years ago across North America, Europe, and Asia in order to facilitate the integration of renewables, , by guiding how market participants generate, trade, supply and consume electricity and use the power infrastructure. The transition towards a zero carbon economy will be largely achieved through electrification. Recently, several reports, including findings from the Intergovernmental Panel on Climate Change (IPCC), have made it clear that large-scale action is still urgently required. With ambitious environmental targets accelerating, power prices increasing, and public resistance towards the placement of renewable generation sources, players in the wholesale and retail markets are not just dealing with complex markets, but need to step up their efforts to prepare for a fundamentally different market; Power Play: the benefits of planning and portfolio management

Managing a portfolio of demand- and supply-side resources is complex. As the share of renewables dramatically increases, wholesale market participants are challenged by the complexity to effectively forecast demand and resource availability while managing their positions, mitigating exposure to market risk complying with regulations, and meeting financial targets. In addition there are new waters to navigate such as the social impact of the energy transition. Portfolio management is essential to operate reliably, affordably, and responsibly in this dynamic environment.

Considering the broad scope, portfolio management is an interplay between electric market simulation, actionable energy market intelligence, optimization of generation resources and portfolios into solution models, forecasting of prices, load, and generation, energy trading and risk management to maximize value and mitigate risk, as well as communication interfaces with market operators. When integrated, it enables planners, portfolio managers, traders, as well as investors to make better economic and strategic decisions and support effective operations

From the bankruptcy of Enron and the California energy crisis in 2001, to the effects of Japan and Germany to abolish nuclear power, the more recent cold spell in Texas and failing retail energy suppliers in the United Kingdom, and the European Union’s just announced Fit for 55 plan , the spotlight has been placed on the benefits of portfolio management in the electric industry and, in particular, the risk management tools it provides.

Good business decisions require good energy market intelligence. Successful and innovative companies constantly evaluate markets to understand the effects of tightening regulations, resource constraints, market volatility and environmental pressures. Considering the complex nature of today’s energy markets, the process of gathering, modeling and analyzing data to produce good intelligence, is a resource-intensive but crucial task needed to operate in a competitive market. 

Similarly, with the transformation of the energy system towards renewable generation, including distributed energy resources (DER), a generation portfolio needs to adapt to these new market conditions that will involve different products and markets. Portfolio planning and optimization helps to obtain the right insights, economically or technically, to take advantage of market opportunities and risks, from future grid constraints to curtailments, in an optimal way.

Given the intermittency of renewable generation sources such as wind and solar, and where trading becomes close to delivery in short-term physical markets, forecasting is critically important in power generation and energy trading. A company’s level of competitiveness is determined by its ability to forecast prices, demand, and production. As result, forecasting results are crucial for optimal portfolio management.

Finally, the market access component of portfolio management is delivered by an Energy Trading and Risk Management (ETRM) system. The ETRM automates tasks and business processes that support the entire trade cycle from deal capture and contract management. Market participants can use this solution to tackle everything from pricing and complex fees, trade confirmations, portfolio management and valuations, risk controls, collateral and credit management, to settlement, and regulatory compliance reporting.

With advancement of renewable energy into the energy mix, portfolio management will also involve the capture, tracking and redeeming of certificates either related to emission allowances, such as Verified Emission Reduction (VER) certificates, or Energy Attribute Certificates, such as Guarantee of Origin certificates. These are tradable products, and while the capture of a purchase or sale of these certificates is straight forward, the inventory management, expiration and cancellation are typically not well supported in an ETRM system. The volume of these certificates is increasing due to an increase in organizations looking to reduce their environmental footprint, and this demand will impact price development, which introduces risk exposures that did not exist before. This is why specialized functionality for the management of Emissions Allowances and Renewable Energy Certificates needs to become part of an overall energy portfolio management solution.

Accelerating the energy transition will require changes in electricity markets that support the higher share of variable renewables such as wind and solar, as well as distributed power generation. Utilities and energy companies need to be agile in order to meet and respond to the rapidly changing competitive conditions of the wholesale power market. Siloed systems lack the visibility and risk controls necessary for effective portfolio management and optimization.

Hitachi Energy’s Energy Portfolio Management group serves the energy industry with integrated software solutions. With an integrated platform, our customers can rely on a single source of truth for information, business analytics, reporting and accounting integration – all with lower risks and lower cost of ownership.

Learn more about energy trading and risk management (ETRM) from Hitachi Energy.

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    Hugo Stappers
    Global Sales Leader

    Hugo Stappers is a global sales leader, in Energy Portfolio Management at Hitachi Energy. He has more than 30 years of experience in sales management, business development, and sales support roles in technology companies. Hugo helps energy industry decision makers understand the options for energy market intelligence services and commercial energy operations software that can enable organizations to maximize operational value and mitigate risk. You can connect with him at LinkedIn.

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