Choose your region and language

Go

Menu

Unlocking value from complex energy portfolios requires more than energy trading and risk management

By Hugo Stappers
13-06-2024 | 5 min read

In the fast-paced world of energy trading, where volatility is the norm and complexity reigns, the need for effective tools to manage risks and optimize trading strategies has never been greater.

As the share of renewable energy increases, wholesale market participants are challenged by the different risk profiles and unpredictability of renewable assets, particularly meeting power obligations and mitigating price risk when the sun is not shining or the wind is not blowing. To succeed at managing risks and optimizing trades, energy companies need to identify and capture opportunities quickly and at the lowest available cost.

Energy Trading and Risk Management (ETRM) systems have been the backbone of energy trading operations for years. However, in today’s volatile environment, traditional ETRM solutions are falling short. Organizations need innovative solutions and holistic approaches – available through Energy Portfolio Management (EPM) solutions – to manage and unlock value from their increasingly complex energy portfolios.


The evolution and promise of ETRM systems

To understand why traditional ETRM systems are falling short amidst complex energy portfolios, we first need to quickly examine their origins.

When ETRM systems first came on the scene, they typically were custom software solutions developed internally by trading houses. These early solutions focused first on providing the ability to record trades and were initially just financial instruments.

Then, they evolved to record physical trades and further expanded to provide a framework for capturing the full transactional lifecycle, all the way through to financial settlement.

ETRM systems were introduced as game-changers with promises to automate trading processes, improve risk management capabilities, streamline operations, reduce manual errors, and enhance decision-making through real-time data analysis and modeling.

The Reality Check

Despite their initial promise, in recent years ETRM systems have faced criticism for falling short of expectations. Industry surveys reveal that many energy companies still struggle to fully automate their trading processes. Meanwhile, volatility and complexity in production, planning, and trading continue to escalate.

Managing a portfolio of demand- and supply-side resources is complex. With more renewable energy generation and changing load patterns, wholesale market participants are challenged to effectively forecast demand and resource availability while managing their positions, mitigating exposure to market risk, complying with regulations, and meeting financial targets.

Meeting this challenge requires hedging financially with instruments, such as futures, options, or swaps, as well as physical assets.


The complexity herein is that cost-savings or increased revenues depend on dynamic variables like location, market prices, demand, or generation type.


While optimization with nuclear, coal, and hydro lent itself to cost reductions, today—with the unpredictability of renewables—battery storage optimization is much more compelling for seizing market opportunities or operating more effectively.
Additionally, there are new waters to navigate, such as the social impact of the energy transition.

Meeting the challenges beyond ETRM

Recognizing the limitations of traditional ETRM systems, energy companies are exploring innovative solutions and approaches. EPM is essential to operate reliably, affordably, and responsibly in this dynamic environment.

Thinking broadly, EPM is the interplay between:

With these specialized functionalities for operational analytics and commercial operations, energy companies can compose a flexible and scalable solution fit for their needs. The integration of these components provides a holistic view that creates transparency, knowledge, and awareness, enabling planners, portfolio managers, traders, and investors to make better economic and strategic decisions and support effective business operations.
Additionally, automating processes and decisions simplifies and streamlines compliance both internally and externally, reducing costs and risks. This positions energy companies to not only address the challenges of the present but also navigate the complexities of the future energy landscape with agility and resilience.

 

The path forward

In the face of mounting challenges and evolving market dynamics, the traditional ETRM solution is no longer sufficient. Successful and innovative companies constantly evaluate markets to understand the effects of tightening regulations, resource constraints, market volatility and environmental pressures. It's crucial to operate in a competitive market.

Equally important are the right insights, economical or technical, to take advantage of market opportunities and risks—from future grid constraints to curtailments—in an optimal way. EPM allows this. Automating the process of the entire cycle from market intelligence to market access increases efficiencies and maximizes opportunities for energy companies. It allows them to bring assets into their trading portfolios, thereby unlocking value through improved decision-making. A game changer!

 

Energy Portfolio Management

Hitachi Energy is uniquely positioned as the only company in the world with a complete EPM offering. This larger end-to-end footprint covers the journey from renewable asset investors all the way to established wholesale electricity market participants and provides tangible benefits to meet the specifics of the customer's goals to navigate the energy market with ease, delivering actionable decisions and improving ROI while leveraging technologies to drive speed, accuracy, and security.

Hitachi Energy co-creates value with customers who are facing a fundamentally different market and supports their activities around investing, planning, operating, or trading for more effective decision-making.


 

Solar power station with city skyline,dubai,UAE.

Explore our Energy Portfolio Management solutions


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.