The energy trading marketplace is rapidly changing. Organizations are looking to extract additional value from their increasingly more complex energy portfolios, and they’re revisiting their strategies and capabilities to do so. To succeed, energy companies need to identify and capture opportunities quickly and at the lowest cost. This is where digitalization comes in. Energy Trading and Risk Management (ETRM) solutions bring the automation and analytics that can drive the transformation necessary for businesses adapt to market changes and exact the maximum value from their trades.
Automation replaces business as usual
Companies not considering automation in their trading operations are already behind. Spreadsheet-based and legacy systems cannot handle the speed at which the market operates and the growing amounts of data that needs to be processed. Reliance on delayed data import and end-of-day reporting creates stress on the front, middle and back office and introduces operational risk, higher cost, and missed opportunities for revenues and profits.
For the front office or trading desk, this stems from limited visibility on risks, affecting profits, and time pressure for decision making. Any inaccurate and untimely information leads to wrong decisions. The risk managers in the middle office depend on access to trade and market data and understanding of risk factors to balance commercial interests with loss prevention or the identification of incorrect behavior. Data errors from manual entry and delays can definitely affect profitability. Similarly, for the settlement analyst in the back office, manual repetitive tasks, complex transactions, lack of transparency, and high probability of data entry errors all leave money on the table.
With the above in mind, consider the potential cost of missed trades, errors made, counterparties defaulted, and penalties paid. Digitalization helps to reduce the stress or pain by minimizing operational risks, increase process efficiency and maintaining compliance with industry regulations and standards.
Business as usual is entering uncharted territory and risk management becomes a matter of survival. Recently defaulted power and gas retailers now realize that in a world of uncertainties, investing in digitalization through integrated energy trading and risk management tools is crucial to run a profitable business. The ETRM system supports a strong risk framework and provides insights in its position, counterparty risk, market risk, shape risk, and Value at Risk, as well as perform portfolio management and risk mitigation.
Digitalization and the energy transition
The energy transition will require changes in electricity markets that support a 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. Taking on new roles, products and services within the competitive wholesale markets requires robust underlying technology and analytical systems that are able to monitor and mitigate risk effectively and efficiently so companies can optimize their energy portfolios. Siloed systems lack the visibility and risk controls necessary for effective portfolio management and optimization. Here digitalization helps to enable market participants to take on these new activities previously unavailable to them.
By equipping themselves with digital solutions, Commercial & Industrial (C&I) businesses, can now monetize their energy assets by taking advantage of flexible markets that offer revenue or savings opportunities through more market participation. Similarly, battery storage owners can do the same. At the same time, however, renewable asset owners see increased exposure due to disappearing subsidies and now need to proactively manage their sales risk. This cannot be accomplished without digitalization of systems and processes.
Digitalization enables near-real time operations through advanced integration with optimization tools, trading venues, automated trading solutions, market operations and back-office functionality for the management of the growing number of standard and complex power purchase agreements and associated volumes of energy attribute certificates.
As the saying goes, “The best way to predict the future is to invent the future”. This means seizing the opportunity by investing in digital solutions that do what was done before better, faster, easier, and cheaper. Digitalization is also necessary to enable an agile transformation for these businesses to unlock value from new models and opportunities.
The power of digitalizing energy trading through the implementation of a next-generation ETRM solution lies not only in improving productivity and efficiency. A next-generation ETRM solution allows companies to monetize their data by leveraging the integration, automation and information at their fingertips to extract value and drive growth. This is the only way they can continue to compete and succeed in a fast-paced and changing market.
At Hitachi Energy, we believe the digitalization journey is about creating real value through data-driven innovation. Companies must be agile and adaptable to be truly successful in today's markets, identifying entirely new ways of working across boundaries toward operational autonomy and faster time to innovation. At the core is the ability to harness the right data to make intelligent decisions about the business.
Learn more about energy trading and risk management (ETRM) from Hitachi Energy.