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ConqueringComplexity
TheChallengeofNorthAmericanPower
By Wolfgang Ferse & Mike Prickett
T
hankstoalabyrinthinemarketstructurewithvarying abreast of such external issues can be trying. But there’s
conventions and information protocols, successfully another big problem too which is the fact that, for most
navigating the North American power market is an organisations,tradersandschedulersoccupyparallelworlds.
arduous task. What are the challenges created by this
complexity and how might the new joint venture between Parallel Worlds: Trading & Scheduling
OpenLink and MCG Energy Solutions empower market Traditionally,tradersandschedulershaveperformedquite
participantsthroughitsintegratedapproachtotrading,risk distinctrolesinthepowermarket.Whereasascheduler’sgoal
managementandlogistics? istobalanceandschedulephysicaldeliveryassmoothlyas
EventhemostexperiencedNorthAmericanpowertraderor possible,atraderismakingfinancialprofitsandmanaging
scheduler would concede that it’s a daily challenge to P&Lvolatility.
successfully operate in the North American power market, So,inthepast,adivisionbetweentradingandscheduling
thankstoitsfragmentationandopacity.Eachregionalmarket mayhavemadesenseinsomeorganisations.Historically,a
varies greatly in terms of its own more active approach to risk
particular market rules, products,
...formostfirms,the
managementwassimplynotgiventop
contract specifications, settlement and
feestructures. What’smore,theserules
separationoftradingand
priority by firms that viewed their
generationassetsasanaturalhedgefor
and products are constantly evolving, schedulingcontinues P&Lvolatility.But,inrecentyears,the
which creates tremendous operational effectivenessofthiskindofhedgehas
challengesandrisksforallcategoriesofmarketparticipants. beenweakenedtosomedegree.Afterall,adecadeago,there
To the less experienced participant seeking to make an wasnosuchthingasacoalshortage,therewaslimitedcoal
optimal decision around execution of a trade, manage pricevolatilityandtherewaslimitedvolatilityinnaturalgas
confirmation and settlement or source additional power to prices.Amidsuchdependablepricestability,inessence,the
meetloadrequirementsatshortnotice,marketstructureand only risk being taken was that the asset would go out of
conventionscanquiteunderstandablyseemconvoluted.And, service.Nowadays,volatilityandshiftingpriceenvironments
that’sbeforeyoueventakeintoaccountthepricevolatilityand meanthattheeffectivenessofthiskindofnaturalhedgeis
dramaticallyshiftingbalanceofsupplyanddemandthatare dubious – making the idea of moving towards a more
partandparcelofthecurrentmarket. thoughtfulandrigorousintegrationoftradingandscheduling
TheTexaselectricitymarket’sturbulent2008servesasacase allthemorecompelling.
inpointforthevolatilityandoperationalchallengesthatmust Nevertheless,formostfirms,theseparationoftradingand
bemanaged.Ashashistoricallybeenthecaseinanumberof schedulingcontinues.Thisdivisionisreflectedin(andhas
regions, the Texas grid is prone to congestion during peak beenperpetuatedby)thedistincttechnologiesthatmostfirms
periods–especiallyalongtransmissionlinesrunningnorth- deployfortheirtradersandschedulers.Toputitsimply,the
south.Bottlenecksinthesupplyofadditionalpowertocover energy trading risk management (ETRM) and scheduling
local shortages have been commonplace in recent years – systemsaren’tableto‘talk’tooneanother.Thisdisconnect
exacerbating price volatility in high-usage areas such as createsoperationalinefficienciesandrisks.Forexample,this
Houston.Lastyearprovednodifferent. unsatisfactory state of affairs often leads to schedulers
Forexample,arolling30-dayaverage(all-hours)forElectric makingsub-optimaldecisionsduetoincompleteinformation
ReliabilityCouncilofTexas(ERCOT)real-timepriceshitmulti- abouttradingactivity.Similarly,tradersmaynotexecutein
year highs in several zones. Indeed, concerns about price themostoptimalwayfortheoverallpowerportfoliowithout
spikes in the balancing market – which ERCOT uses to ready access to near real-time information about
manageunder-andover-schedulingresultingfromchanges transmissionconstraints.
in load demand – led to the imposition of emergency In other words, without a truly integrated solution that
congestionrulesthatneededtobequicklyassimilatedbyall bringstogethertradingandschedulingsystems,it’sextremely
marketparticipants. difficultforanorganisationtogiveanaccurateanswertothe
Whetheryourorganisationisagenerator,aloadserving very basic question of what its power commitments are,
entity(LSE),oramarketer,andwhetheryouareatrader,a versus its current capacity at any given time – especially
scheduler,orareworkinginsomerelatedfunction,keeping whenitinvolvessignificantactivityinthereal-timemarket.
84 worldPower2009
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