With the changing generation and increasing reliance on renewable energy and natural gas, markets that were once governed primarily by weather-determined demand, have become more complex.
Dependence on natural gas has led to an increasing correlation and reduced arbitrage between power and gas. Natural gas used to generate electricity was abundant and cheap during much of the last decade amid a boom in supply from the U.S. to Australia. However, the era of cheap natural gas is over, giving way to an age of far more costly energy that will create ripple effects across global power markets.
Regulatory directives at the federal, regional and state levels will continue to impact the US and global power markets. The U.S. has long been the gold standard for open power markets, other markets have tried to emulate to varying degrees. The EU continues to pursue policies to build a unified electricity market. Japan, Australia and other APAC countries are now also pursuing liberalization across their power markets.
The power market generation stack is rapidly changing. Thermal generators are being retired; solar and wind generation are increasing at unprecedented rates; and the timeline for adoption of utility-scale battery storage is rapidly getting moved forward. The reality of this change is the challenge of unpredictability. The intermittent nature of wind and solar means power grids will need to quickly address energy shortfalls to maintain reliance. This leads to increased volatility around intraday prices as grid operators’ price incremental resources such as natural gas peaking plants in and out of the market to maintain stability.
THE FULL PICTURE
For utilities and power traders, success in this new paradigm requires a complete view of asset positions and risk exposures. Operating successfully will require the flexibility and scale of new technology – advanced platforms that quickly aggregate, optimize, forecast and value the assortment of new variables across the ever-evolving global power markets.
Only few CTRM solutions provide a next generation risk management platform for real-time trade capture, mark to market and risk management for North American and European Power Markets. If you’re interested to learn more, we’d love to talk.