Ask Ed Bell about energy trading and risk management (ETRM) technology and he’ll likely bring up his days with Enron back in the early 1990s. Bell—now a principal at Houston-based technology...
ETRM software is adapting to a changing energy market.
so they can examine total risk and exposures,” says Michael Hinton, Allegro’s chief marketing officer. “Things change fast, so they need to work in real time to either minimize or take the opportunity presented by the risk. To do that you need connectivity, both inside and outside the enterprise, and it all has to flow seamlessly.”
In addition to employing SOA platforms to collect information from other databases, vendors also are taking a modular approach to key ETRM components or applications. The idea is to let customers choose when it’s time to upgrade or add new programs with new capabilities.
For instance, in November 2009, Allegro introduced Hedge 8.1 to assist clients looking for a better way to comply with hedge accounting and fair value disclosure requirements.
“During a time of extreme price volatility, there may be questions about a pricing run-up. To comply with internal and external hedge accounting rules, the customer will need to document and prove the effectiveness of their transactions,” Hinton says. “That’s a complex process and this module can automate and streamline it.”
Of course, uncertainties remain about whether enterprise-level ETRM offerings will be able to integrate and process the smart-grid data supplied by a utility’s meter data management system, and whether there will be capability to monitor renewable energy assets and incorporate output into a carbon certificate sale or purchase analysis.
Keith Harrison, research director with Gartner’s utilities industry advisory group, says this will happen.
“Already these systems are used to trade everything from natural gas and coal to metals,” he says. “So in terms of suitability to a specific function, such as trading CO 2 credits, it isn’t much different from trading any other paper-based commodity. The big concern in the United States is nobody knows what the CO 2 market will look like. And you can’t sell the software until you have a market for it.”
True enough, but that isn’t stopping ETRM vendors from laying the groundwork in advance.
Ventyx, for example, has introduced a smart-grid operations solution module that processes a utility’s retail and commercial operations data, including dispatch schedules and fuel-consumption forecasts, to help optimize its generating fleet performance, given the variables that might be common to smart-grid operations.
“In the future you’ll have customer choice, and with it the associated time-of-use tariffs. That will change everything and present new levels of risk,” Crisp explains. “If I’m a utility, I want [an ETRM] system I can scale up to integrate critical-peak pricing and accurately forecast my electrical positions. Depending on the utility and market, we could be talking about demand swings in the hundreds of megawatts.”
Vendors are taking a similar view with regard to tracking and trading of CO 2 certificates.
“You break it down to the commodity, location, time factors, and product evaluations and then use the risk analysis engine to create the metrics,” says Caron of RiskAdvisory. “You perform the ‘what if’ calculations by asking, ‘What happens if the emissions market goes through the roof, or if this is the legislation we end up with, a