Matrica Load Management and Energy Forecasting in EU

Matrica Load Management and Energy Forecasting in EU Energy markets.

9 th Simone Conference Dubrovnik October 2008 Demand Behaviour in Competitive Markets By Matrica www. matrica. co. uk

Company • Matrica has been providing consultancy and software solutions for the Energy industry since 1994. • 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: Sun. Gard (ETRM systems), Weprog (ensemble weather), Octaganet (Generation optimisation & emissions), Logica. CMG, 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

Demand • 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.

Misreading Demand 14 12 10 8 Demand Supply 6 4 2 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

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: Energy • • Primary and Derived sources • 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. Price of one affects the other. Especially notable where gas fired turbines are used for power generation

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

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

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

Demand Movements • 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

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.

Market volatility • 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 • The exposure to risk is increased manifold Price indicators can encourage irrational storage (gas) Traders and Brokers can distort the actual demand indicators and can show increased short term Effective Demand

Handling 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

Conclusion 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

Thank you Matrica www. matrica. co. uk