No, this is not a fitness program for middle aged men, but the name of a comprehensive plan announced by the European Commission last month to reduce the European Union (EU) carbon emissions by 55 percent from 1990 levels by 2030 and achieve ‘net zero’ by 2050. If approved, it is going to have a big impact on people and industry. Central to cutting emissions is putting a price on the pollution through the Emissions Trading System (ETS). The plan also includes an increase in renewable energy targets by making project approvals easier. As a participant in the wholesale energy market or as a large energy consumer, in order to manage this new environment requires you to be equipped to get ‘in shape’ for Fit for 55: 3 Tools you may consider.
The EU, under the EU Emissions Trading Scheme (cap ‘n trade) has been providing emission allowances to the industry for free (to protect the industry), although this is now increasingly done through auctions (so companies need to pay). The most widely traded product is called EUA, which are essentially financial instruments traded at Trading Exchanges. If emitting companies do not have enough allowances, they need to buy, and if they have a surplus then can either hold them for next year or sell them. The cap of total emissions is being reduced gradually, and the number of Emission Allowances is finite.
The annual procedure of monitoring, reporting and verification (MRV), together with all the associated processes, is known as the ETS compliance cycle. Those covered by the EU ETS are required to have an approved monitoring plan for monitoring and reporting annual emissions. Every year, operators must submit an emissions report. The data for a given year must be verified and the equivalent number of allowances must be surrendered.
Tried and tested in the USA, where as part of the 1990 Clear Air Act and Acid Rain Program the sulfur dioxide (SO2) trading system was an early example of an Emission Trading System, EmissionsTracker is a comprehensive software package that automates end-to-end emissions tracking and management processes.
It is designed to support enterprise-wide inventory tracking, trading and compliance with greenhouse gas accounting standard and reporting requirements. The solution supports comprehensive environmental products including greenhouse gases (GHG), emissions reduction credits, CO2 offsets, CO2 credits, SO2, NOX, REC, and Kyoto Protocol defined products such as EUA, CER, ERU and VER.
For whom: Fossil power generators, Industrial installations, Aircraft operators, Shipping, Transportation . subject to submitting an emissions report for verification by an accredited verifier and others to participate in voluntary or mandatory compliance programs.
The advancement of renewable energy into the energy mix is also leading to increased volumes of Energy Attribute Certificates (EAC), generally known as Renewable Energy Certificates (REC) in North America, and Guarantee of Origin (GOO) certificates in Europe. As REC/GOOs are tradable and organizations are increasingly looking to reduce their environment footprint, this demand will also impact price development. Together, this has resulted in both risk managers and legal departments paying attention to the associated risks in EAC deals. There is clear consensus that ETRM system fall short to manage this risk and it requires a specialized solution.
An EAC, such as a GOO, is a green energy attribute certificate that guarantees that one MWh of electricity has been produced from renewable energy sources. EACs are tradable products with an expiration period of one year from the date of certification. Also, when the energy is delivered, the EAC is cancelled. In the next 10 years, the EAC volume is projected to continue its current growth rate (accumulated volume between 2020 and 2030 12,000TWh), while prices are forecasted to more than double.
RECTracker automates the end-to-end Energy Attribute Certificates tracking and management of processes from generation to assignment and retirement or expiration. RECTracker provides robust functionality for inventory planning and management, capture EAC trades (manual and via imports), EAC management (import account status from registries), counterparty and contract management, positions reporting, matching (by using inventory across several positions), price curve management, manage client margin calls, calculate Mark-to-Market, FX exposure reporting, and settlement and invoicing.
Due to the continued growth of the renewable energy market, the increasing volumes of EAC cancellations and customer demands are outgrowing current usage of spreadsheet-based systems, reliance on the portal with access to the registry of the certification entity or the limitations of functionality included in traditional ETRM systems.
For whom: Energy Retail providers, Generators, Utilities selling Power Purchase Agreements, to benefit from renewable energy certificate market opportunities, while managing contract and operational risk.
Organizations are increasingly looking to reduce their environmental footprint, which is leading to purchasing directly from renewable energy generators. As a result, Power Purchase Agreements (PPA) is important growth area. At the same time, trading in a renewable market will introduce more complex products and associated contracts for which many energy trading and risk management systems (ETRM) are not well equipped. The often rely on manual processes, spreadsheet-based solutions and an army of settlement analysts.
SettlementTracker is an end-to-end, integrated settlement and accounting software package specifically geared toward complex energy contracts. The platform offers straight-through processing (STP) and built-in workflow management that automates meter data and billing determinants, settlement processes and accounting entries as well as proven integration with other ETRM and General Ledger systems.
SettlementTracker streamlines the contract-to-bill process, from capture of all invoice-able trades under master agreements (e.g., EFET, ISDA) and complex contracts (PPA, Intercompany, Generation and Renewables) to creation of accrual entries. It provides unparalleled configurability of contract rules and billing determinants that is template-based and formula driven.
A key differentiator of SettlementTracker is the notion of Billing Determinants and Charge Types that, along with its formula engine, delivers the necessary functionality for non-standard contract settlement and billing. This functionality is also required if one wants a complete P&L report meaning, SettlementTracker can do shadow settlement to calculate estimates.
For whom: Energy Retailers, Renewable Generators, Utilities, Trading companies and others seeking a proven solution to settle their standard and custom energy contracts in a single system and improve efficiency and effectiveness of the back offices processes, reduce back office cost, improve financial accuracy down to the cent, and thereby maximizing operational margin.
Learn more about energy trading and risk management (ETRM) from Hitachi Energy.