The reduction of greenhouse gas emissions towards a zero carbon economy will be largely achieved through electrification. This means transitioning away from fossil fuels for residential cooking and heating, as well as electrifying end uses from industry and transportation. This will have a profound impact on electricity demand across global power markets. This demand is also being accelerated by the developments in the natural gas market stemming from the conflict in Ukraine, with added pressure from bodies like the UN IPCC, that urge large-scale action to be taken to realize zero-carbon goals by the second half of this century.
However, this transition towards electrification is met with various challenges ranging from commodity cost impact – affecting the manufacturing and innovation of wind turbines, solar panels and batteries for electric vehicles, public resistance towards the placement of renewable generation sources – hampering decentralization, lagging market designs not ready for net-zero – resulting in unfair price and excessive consumer cost developments, overloaded and congested transmission grids – slowing down new connections and transition to electrifying gas demand from production and transport, to managing an evolving wholesale market – balancing a network with different types of supply and demand.
We all know the ‘What:’ net zero carbon, but the ‘How’ is a bumpy road requiring critical insights to make informed investment, operational and trading decisions, in order to meet the decarbonization targets.
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. Based on tested models, market intelligence solutions provide fundamental insights into market data, market trends, data for market simulation, regulatory analysis, renewable energy certificates, and capacity market forecast.
Market simulation solutions make it easier to analyze and predict future energy markets. Consider, for example, that countries are studying markets that were not designed to support renewables and the transition to net zero. Due to the higher renewables penetration, the transmission grid is under pressure and cost constraints are tightening. These studies are looking at different options, including a nodal market design with a larger volume of geographically differentiated prices. Market simulation makes it easier by forecasting the wholesale electricity prices, predicting how generators are going to operate in the market, how plants will react to regulations, what future revenue and cost could be, and transmission congestion issues. Through sophisticated modeling it supports scenarios to include renewable integration studies, environmental regulation, demand response, and transmission expansion/siting analysis.
The proliferation of renewable sources into the energy mix puts utilities under higher pressure to supply power to consumers in a timely & cost effective manner. Portfolio planning and optimization solutions support near real-time fluctuations in forecasts and balance renewables and storage with traditional generation. They enable long term portfolio planning as well as optimal short term dispatch and operations, thereby providing the right insights, economic and technical, to take advantage of market opportunities and risks, from future grid constraints to curtailments, in an optimal way.
That gets us from planning to commercial operations and trading because the distributed generation and decentralization along with the aforementioned challenges for the transmission operators lead to 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. Renewable generation is less predictable, which introduces volatility, where positions may change rapidly. 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. In addition, organizations are increasingly looking to reduce their environmental footprint leading to complex power purchase agreements.
An Energy Trading and Risk Management (ETRM) system automates tasks and business processes that support the entire trade cycle from deal capture and contract management. The ETRM system will allow market participants to tackle everything from market pricing, fees, trade confirmations, position management and valuations, risk controls, collateral and credit management, to settlement, and regulatory compliance reporting. Direct connections with trading venues, like spot markets can be established, while supporting automated / algorithmic trading solutions.
Direct ties to energy trading in a renewable market and the continued demand by companies and consumers choosing green energy, is driving demand for tradeable certificates to offset CO2 emissions or to prove electricity was generated by a renewable source. This introduces higher trade volumes and will impact prices and risk. Specialized functionality will help market participants with the tracking, inventory management, allocation and retirement of emissions allowances and renewable energy certificates.
Ambitious environmental targets are impacting the wholesale and retail markets as they adjust to this transition towards an electrified, zero-carbon economy. However, in a world facing weather extremes, geopolitical developments, as well as varying opinions on how to achieve net zero carbon, our energy systems need to become smart, digital and flexible to meet your operational and financial targets: Electrification absolutely requires some Planning and Trading.
Hitachi Energy co-creates value with customers that are facing a fundamentally different market and support their activities around investing planning, operating or trading for more effective decision making.
Learn more about energy trading and risk management (ETRM) from Hitachi Energy.