Load Management and Energy Forecasting in EU Energy markets. Matrica

9 th Simone Conference Dubrovnik October 2008 Demand Behaviour in Competitive Markets ByMatrica 9 th Simone Conference Dubrovnik October 2008 Demand Behaviour in Competitive Markets ByMatrica

Matrica has been providing consultancy and software solutions for the Energy industry since Successful installations in over 20 major energy companies which includes: EDF, EON, Essent, DONG, Centrica, Sonelgaz, etc. Academic affiliations: Kings & Imperial Colleges, University of London, ENI University of Milan; Student researchers: Post graduate programme Business alliances: SunGard (ETRM systems), Weprog (ensemble weather), Octaganet (Generation optimisation & emissions), LogicaCMG, Sapient, Fujitsu, Structure Group, S&T for integration ISO 9001:2002 Certification Company

Business Activities Software Applications and Consultancy for the Energy industry: products for Load Demand Management, Price Forecasting, Data Warehousing, Data Transfer and Analysis Solutions for Distributors, Transporters, Generators and Energy Traders in both Gas and Electricity markets Proprietary in-house developed products, own all IPR plus selected third party products/services: “the best of breed” Consultancy, Training, Workshops Maintenance and Support and on-going programme of update and enhancement Company

The requirement levels of products, resources and services by an economy The division of this requirement into time frames The planning for the production of these The delivery of requirements The costs involved with its production The prices charged for the production and distribution Demand

Two types of demand: Demand: Overall and generalised indicator for the volume of product over a given period of time Effective Demand: The actual volume of these products that can, and are, consumed over the same given period of time and which are either paid for or contracted for payment. Demand

Misreading Demand

Economic observations based on Demand is conventional and more obvious in less liberalised markets Developed markets which have access to, and are active in, commodity exchanges tend to demonstrate behaviours based on Effective Demand Demand

Primary and Derived sources Price of one affects the other. Especially notable where gas fired turbines are used for power generation Distorted prices for a primary source can create distorted demand for the derived source. E.g. high gas prices resulting in switching to power driven heating and cooking. Demand: Energy

Interdependencies Generators accept bids on price and schedules Transporters accept capacity bookings depending on TPA agreements and Line Pack congestion Distributors deliver to either end users or subsidiary resellers Reversing this order is the start of demand management. Demand Movements

Distributor Upstream Long Term Contracts Storage Standby Gen Spot Large Industrials Suppliers/Retailers Transporter/ System Operator Market Operator/ Settlements “Collectives” Stadtwerke, Municipalities Nominations Invoices Vulnerability areas: Risk Exposure

In open markets territorial definition is different Cross border selling is possible Cross border procurement is possible Non national markets can have different demand patterns Transportation agreements become transparent: hubs Seller can trade without assets: trading and exchanges Demand and Effective Demand becomes blurred Demand Behaviour

Fundamental change is in the making available of energy through a privatised distribution process. Incentive to perform efficiently is engineered through profitability in diverse market operations Regulatory control exists, but is exercised with varying degrees of strictness Regulatory supervision depends on control of information available from Transportation The Distribution Networks play a very important role in minimising errors in balancing arising from misreading of demand indicators Demand Movements

Network models POINT-to-POINT Shipper A must contract transport capacity to B or C as a sequence of individual pipelines networks

Network models ENTRY-EXIT Shipper nominates on entry point A and exit point B TSO(s) treat them as ‘coupled’ and takes care of all physical flow in their own network.

TPA licences permits free flow of product limited only by availability of capacity and delivery points (SPs) on the Grid Shippers may find capacity is not available if not booked in advance Capacity may have been booked on speculative basis Price indicators can encourage irrational storage (gas) Traders and Brokers can distort the actual demand indicators and can show increased short term Effective Demand The exposure to risk is increased manifold Market volatility

The assessment of demand must exist at both macro and micro levels of the operations National demand must be known as must the portfolio demand of each and every shipper Short term demand forecasts are crucial for daily balancing Medium term forecasting is of great assistance in risk management and storage capacity booking (gas) Long term is used predominantly for supply contracts and for infrastructure investment Handling volatility

Open market economics are here How open should the market be? Where is the control vested for national stability? Is there corporate responsibility? How effectively can shortages and peaks be both anticipated as well as handled and what are the mechanisms in place? Demand forecasting for energy is no longer a subsidiary operational activity. Knowledge of market movements is crucial. Ignore demand patterns and behaviour at substantial risk Conclusion

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