• • • EDITOR’S CHOICE • • •
How to ensure accurate
energy settlements By John Craig Swartz, SVP Risk360, POWWR
he importance of energy settlements, which involve reconciling the buying and selling of electricity or other forms of energy in retail energy markets, cannot be overstated. After all, they ensure that energy producers, suppliers and consumers are all correctly compensated for the energy they generate, distribute or consume. In many ways, they are critical for the efficient functioning of the energy markets itself. However, the process of energy settlements can be extraordinarily complex. Part of the problem is that it can be difficult to track the electricity as it flows through system. Then there are all the additional non-electricity costs and a decision in how to allocate them. Because of this, it is extremely easy for retail energy providers (REPs) to take their eye off the ball.
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Accuracy is imperative Knowledge is power, and with energy settlements this is particularly true. Without the right information at their fingertips, it is impossible for a REP to be sure that they are being charged, or charging, the right amount.
Accuracy is imperative. A critical component of effective energy settlements is identifying where fluctuations and energy usage is. This is not a time for guesswork and approximation. Rather, it is essential to get ahead of what the costs will be and forecast reconciliations before an ISO asks for it. The reality is that mistakes happen. Sometimes a REP can be under or overbilled. Because of this,
it is crucial that a REP can accurately track the energy its customers are consuming so that it can ensure they are being billed correctly and only paying for the energy used. There are, unfortunately, examples of REPs not receiving the credits it should have from an ISO because of not having the correct information. When these credits can total hundreds of thousands of dollars they are not to be sniffed at.
Adapting with agility
and accuracy The reality is that it is very difficult for a REP to challenge what the ISO says it has to pay. The key, therefore, is to quickly validate forecasted data to mitigate the threat of nasty surprises so that margins are protected. With margins being so tight, if a REP was to price too low, it could go out of business. Yet, price too high and it will lose customers to its competitors. REPs need to, therefore, make informed decisions promptly, so that they can adapt to market changes with agility and accuracy. Particularly at periods of wider market volatility where it is otherwise difficult to hedge. By automating settlements, a REP can course correct its pricing quickly.
Tackling the big data mountain The knowledge sought comes from information, and information comes from data. The good news
is that there is more data than ever before. This is because ISOs are getting increasingly granular with their data collection. This causes a problem, though, as many REPs simply do not have the time or internal resources to sift through this data. Because of this, traditional methods of managing energy settlements have become increasingly cumbersome and inefficient. REPs can become swamped with disparate spreadsheets and complex datasets. This makes it challenging for them to keep up with fast-paced changes in the market. The result is a reactive rather than proactive approach to energy settlements, which can lead to missed opportunities, reduced margins and increased risk exposure. When tackling the big data mountain, REPs need to lean on the latest technology solutions. These solutions can reimagine the energy settlement process by integrating a variety of potential risk factors and market dynamics into a single, coherent report. This holistic approach allows for enhanced margin optimisation, more efficient risk management and the ability to forecast future scenarios with greater accuracy.
Ensuring one version of the truth With margins so tight, it has never been more important to ensure that settlements are accurate. The energy a REP buys is, by far, its biggest cost. Yet, this should only be done when every component of the chain is transparent and true. For sustainable business practices, being able to accurately forecast usage is crucial. It is important to tie together the various elements that could impact energy settlements to ensure one version of the truth.
By consolidating all relevant data into a unified platform, it provides a REP with a comprehensive overview of their operations. This integrated perspective is crucial for identifying and mitigating risks before they manifest into financial losses, as well as for capitalising on market opportunities to increase profit margins.
Being able to quickly validate pricing and margin assumptions is crucial to a REP being nimble and being able to compete. It also helps them manage volatile costs that are difficult to hedge. Plus track non-energy cost components which is another key insight when shaping a pricing strategy. Correct energy settlement is important for the wider industry, too. And a stable and efficiently managed energy sector is not only crucial for industrial production and economic growth but is also integral to the health and welfare of citizens.
10 ELECTRICAL ENGINEERING • DECEMBER/JANUARY 2025
electricalengineeringmagazine.co.uk
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