The Energy Trading Revolution: Evolving Markets, New Platforms and Technologies

Copyright © Baringa Partners LLP 2017. All rights reserved. This document is subject to contract and contains confidential and proprietary information.
The Energy Trading Revolution
ETOT Summit 2017

Copyright © Baringa Partners LLP 2017. All rights reserved. This document is subject to contract and contains confidential and proprietary information. 2
Evolving
Markets
New Platforms and Technologies
Business
Change
Introduction
Looking at the bigger picture:
What’s trending in energy trading?

Partner at Baringa
Started career at in Gas Operations & Dispatch
15 Years focussed on Energy Trading Technology
Introduction
Andrew Singleton

About Baringa Partners
Market-leading
consulting company
with a focus on
energy,
commodities and
financial services
Market turnover
of approx. £120m,
circa 600
professionals
Strong
track record across
Trading Strategy,
Risk Policy, Trading
IT Strategy &
Delivery and
Business Change
Reputation-driven
business, with over
80% of our work
coming from repeat
business
Baringa
works across the
energy value chain
from Integrated Oil
Majors, Power
Generators to
Traders

Business
Change
Evolving
Markets
How are the underlying
markets changing?

Global industry trends
Why are we seeing so much change so quickly?
The global energy industry is profoundly changing, transforming market structures and challenging
existing models
KeydriversKeyMacroimpacts
The Need:
Global energy shortfall and
electrification of the energy system
The Commitment:
A low carbon future
The Enabler:
Technology advances and innovation
New
investments
needed to
meet shortfall
Widespread
adoption of
renewables
Distributed
energy
eco-system
Changing
consumer
behaviours
and needs
Opportunities
differ in
emerging vs
developed
economies
Weak
commodity
prices
New
technologies
dominate
Business
model
disruptions

More directly, What is happening to the network?
Flexible aggregation services across renewable generation, flexible distributed generation,
and demand side management alongside rapid technology development
Old World
New World
Large scale generation Transmission Local distribution Local distribution
Local storage
Large scale renewables
Backup / baseload
Demand
usage
Electric
vehicles
Local generation
Local generation
Micro-grids
Smart network
infrastructure

In the UK, by 2020, Solar / Wind will make up nearly
1/3 of the generation capacity
In Germany, where Renewables already make up 50% of
generation capacity, there is already a significant growth in
new Battery and Demand Response Capacity
What’s the evidence behind this?
Historic actuals and our projections show a continued and significant push towards this New World

Macro Themes
Traditional
‘Midstream’ Curve
Trading
So what are the new ‘Value Pools’ that people
are looking at?
Value pools are shifting and in response we are seeing changing business models and new entry
A complex energy ecosystem
Upstream Focused
(production, generation, commodity)
Midstream Focused
(trading, transmission, distribution)
Downstream Focused
(customers)
1 Rising energy demand
2 New technologies
3 Decentralisation
4 New business models
Revenuecomplexity
Single/LinearMulti/PortfolioDynamic

Macro Themes
So what are the new ‘Value Pools’ that people
are looking at?
Value pools are shifting and in response we are seeing changing business models and new entry
Upstream Focused
Midstream Focused
Downstream Focused
(customers)
2 New technologies
3 Decentralisation
Revenuecomplexity
Single/LinearMulti/PortfolioDynamic
Monetisation of B2B asset
and DSR flexibility
EVs and
V2G/V2H
Flexibility markets to aggregate B2B and other
asset flexibility
Large Customer
Energy Optimisation
Sourcing for independent retailers with
imbalance management
Structured
contracts
(tolls, PPAs,
fixed price)
Traditional
‘Midstream’ Curve
Trading

Macro Themes
So who’s taking advantage of these different
Value Pools?
Participation models are shifting and we are seeing changing business models and new entry
Upstream Focused
Midstream Focused
Downstream Focused
(customers)
2 New technologies
3 Decentralisation
Traders
Asset Owners and Operators
Hi Tech Companies, Large Energy Users
Technology Based New Entrants, Aggregators
Power and Gas VIUs
Asset Developers
Financial Investors
Integrated Oil Majors
Power and Gas VIUs
Power Generators

Evolving
Markets
Business
Change
What are the technology
trends to monetise this
New World? New Platforms and Technologies

What do these trends mean operationally?
The market is shifting to shorter term trading and operations across the landscape
Half-hour
settlement
period
“Gate Closure”
(t – 1 hr)
Delivery
(t + 0 hr)
Day-ahead
(t – 24 hr)
Month
Ahead
Season
Ahead
Year
Ahead
Settlement
(t + 0.5 hr)
Grid Trade Master Agreement (GTMA) bilateral OTC forward markets
Bi-lateral contracts between generators and electricity suppliers.
Season and month ahead future
contracts
ICE, Endex futures. Very limited liquidity
Day-ahead market (DAM)
Exchanges
N2EX and APX Exchanges. Increased
liquidity since
2011/12
Intra-day market
(IDM)
N2EX and APX National Grid’s Balancing Actions
Balancing Mechanism and Balancing
Service actions to alleviate energy
and system imbalances
Imbalance Settlement
Calculate cash-out prices and
settles cash-flows arising
from balancing actions
Balancing
Mechanism
Balancing
Services

What do these trends mean operationally?
The market is shifting to shorter term trading and operations across the landscape
Half-hour
settlement
period
“Gate Closure”
(t – 1 hr)
Delivery
(t + 0 hr)
Day-ahead
(t – 24 hr)
Month
Ahead
Season
Ahead
Year
Ahead
Settlement
(t + 0.5 hr)
Grid Trade Master Agreement (GTMA) bilateral OTC forward markets
Bi-lateral contracts between generators and electricity suppliers.
Season and month ahead future
contracts
ICE, Endex futures. Very limited liquidity
Day-ahead market (DAM)
Exchanges
N2EX and APX Exchanges. Increased
liquidity since
2011/12
Intra-day market
(IDM)
N2EX and APX National Grid’s Balancing Actions
Balancing Mechanism and Balancing
Service actions to alleviate energy
and system imbalances
Imbalance Settlement
Calculate cash-out prices and
settles cash-flows arising
from balancing actions
Balancing
Mechanism
Balancing
Services
There is an ongoing shift of trading
to the shorter term horizon

Evolving
Markets
Business
Change
Improve
the old
Develop
new
Do it
differently

Real Time & Long Term Optimisation
End of Day
Reporting
Logistics &
Dispatch Systems
Power , Gas, Emissions
Standard Transaction Mgmt Platform
Structured Transaction Mgmt Platform
Pricing Systems
Trader Front
End / Trader
Desktop
Trading Operations
(Confirms/Settlements/ Margining)
EMIIR / REMIT /
MIFID
Internal Trading
Marketplace
Real Time
Reporting
What’s the new ‘fit for purpose’?
Legacy architectures are changing to reflect a more efficient way of
operating in a short term world
Improve
the old

End of Day
Reporting
Logistics &
Dispatch Systems
Pricing Systems
Trader Front
End / Trader
Desktop
Trading Operations
EMIIR / REMIT /
MIFID
Internal Trading
Marketplace
Real Time
Reporting
The ETRM
Platform is has
traditionally been
both the backbone
and the core
functional solution
for most trading
organisations
Improve
the old

Improve
the old
End of Day
Reporting
Logistics &
Dispatch Systems
Pricing Systems
Trader Front
End / Trader
Desktop
Trading Operations
EMIIR / REMIT /
MIFID
Internal Trading
Marketplace
Real Time
Reporting
Market Abuse
Reporting
Many more
‘lightly controlled
tools’ around the
edge of the ETRM
to take advantage
of short term
opportunities More
complex and
discrete
pricing
engines
New
regulation
focused
systems
Rise of lower
cost, but less
functionally
rich ETRM
platforms
Externally
accessible
‘internal trading
market places’

New Services and technology to cover
new segments
What does ‘new’ need to cover?
£
Pay less
Consume
less
Buy
less
Energy
efficiency
investments
Behaviours
Onsite
renewables
Onsite
thermal
Onsite
CHP
Onsite
battery
hybrids
Optimised
procurement
Direct
PPAs
Monetising
flexibility
Direct asset
investment
Flexibility for the customer
85% of Large Energy Users forecast an increase in Demand*
60% of Large Energy Users are anticipating shifting supplier*
* Baringa Large Energy Users Survey 2017 to nearest 5%
Develop
new

86% of Large Energy Users forecast an increase in Demand*
60% of Large Energy Users are anticipating shifting supplier*
* Baringa Large Energy Users Survey 2017
Develop
new
New Services and technology to cover
new segments
What does ‘new’ need to cover?
£
Pay less
Consume
less
Buy
less
Energy
efficiency
investments
Behaviours
Onsite
renewables
Onsite
thermal
Onsite
CHP
Onsite
battery
hybrids
Optimised
procurement
Direct
PPAs
Monetising
flexibility
Direct asset
investment
Flexibility
Flexibility for the customer Flexibility for new revenue streams
Estimated Ancillary Service Revenue across the UK and
Germany is circa £700m / year

Develop
new
What does Flexibility require?
What tools and capabilities do you need to monetise flexibility?
End of Day
Reporting
Logistics &
Dispatch Systems
Pricing Systems
Trader Front
End / Trader
Desktop
Trading Operations
EMIIR / REMIT /
MIFID
Internal Trading
Marketplace
Real Time
Reporting
Market Abuse
Reporting

Develop
new
End of Day
Reporting
Logistics &
Dispatch Systems
Pricing Systems
Trader Front
End / Trader
Desktop
Trading Operations
EMIIR / REMIT /
MIFID
Internal Trading
Marketplace
Real Time
Reporting
What does Flexibility require?
What tools and capabilities do you need to monetise flexibility?
Market Abuse
Reporting
Customer
Digital Front
End
Customer
Settlements
Control
Platform
Control
Units
The shift
in technology
investment is moving
the investment
towards optimization
and control, away
from trading

Data
Analytics
Robotic Process
Automation
Do it
differently
Embracing Digital & Data Transformation
New technologies provide new opportunities to transform and further
improve operations across all Value Pools

Do it
differently
Leverage Data Analytics
Indicative Data Analytics use-cases
Generation Trading Distribution Retail Consumption
Price Elasticities & New Pricing Models
Micro Targeting & Customer Acquisition
Churn Prediction & Prevention
Analytical Trading Strategy Adoption
Increased flexibility by using Real Time Data
Improve Imbalance Forecasting & Costs
Grid Capacity Management
Optimisation of Ancillary Service Provision Structure profitable Customer ProductsAsset Optimisation
Predictive Asset Maintenance

Do it
differently
Leverage Blockchain
Indicative Blockchain use-cases
Peer to Peer Trading
Microgrid Trading
Auto Confirmations, Matching & Settlement
Optimisation of Ancillary Service Provision
Demand Side Response & Distributed Generation
Green Incentives Platform
Structure profitable Customer Products
Electric Vehicles Charging
Meter Switching platform
Asset Optimisation

Do it
differently
Leverage Robotic Process Automation
Indicative Robotic Process Automation use-cases
Customer Lifecycle Management
Automated Position Management
Risk & Transaction Reporting
Microgrid Trading
Automation of Scheduling
Asset Optimisation
Asset Dispatch

Do it
differently
Find the right tool to optimise your business
Customer Lifecycle Management
Automated Position Management
Risk & Transaction Reporting
Microgrid Trading
Automation of Scheduling
Asset Optimisation
Asset Dispatch
New technologies provide new opportunities to transform and further
improve operations across all Value Pools

Evolving
Markets
So what do you need to
do to stay ahead?
Business
Change

Set yourselves up to be operate in a more
‘nimble’ way
Digital Transformation requires organisations
to have the following capabilities in place in
order to operate in an agile way.
Nimble
(Agile?)
Organisation
Architecture
Finance and
Governance
Product
Owners
Customer
Experience
design
Technology
Nimble
(Agile?)
Organisation
Finance and Governance models
needs to be aligned to the change
process to ensure they can release
funding and provide sign off in an
agile way
Focus on creating experiences
that respond to customers
needs. Use test and learn/design
sprints to validate
Use technology to enable you to create
prototpes and test with customers
before spending time and money
developing something that might fail
Representing customer and business needs, bringing
together strategy, commerciality and delivery.
The systems architecture needs to allow
access to core systems in order to
industrialise prototypes and enbale
2-speed solution

Value pools
and business priorities will
drive the architecture
Setting up / refining the
business model is critical to
ensure E2E Efficiency
Understand where you are going and how you’re
going to get there
You can’t design for every eventuality – early prioritization of what is important is critical
Commercial
Strategy
Trading
Operating
Model
Business
Objectives

Wrap Up and Key Takeaways
The trading landscape is evolving:
There’s a lot you can and should do to stay at the forefront:
BUT: Don’t shortcut and bake in bad processes using ‘new technology’ without underlying business change –
this will increase long term inefficiency
• Shift in underlying market dynamics &
fundamentals
• New Entrants and New Business Models
• New Value Pools and opportunities
• Understand your business strategy
and how this aligns to value pools
• Refine your architecture to better
support this – this doesn’t have to be
‘big bang’
• Re-invent today to provide a 2 speed
approach to meet new needs

Andrew Singleton
Partner
andrew.singleton@baringa.com
Business and IT Consulting across Commodities, Energy and Financial Markets

This document: (a) is proprietary and confidential to Baringa Partners LLP (“Baringa”) and should not be disclosed to or relied upon by
any third parties or re-used without Baringa's consent; (b) shall not form part of any contract nor constitute an offer capable of
acceptance or an acceptance; (c) excludes all conditions and warranties whether express or implied by statute, law or otherwise; (d)
places no responsibility or liability on Baringa for any inaccuracy, incompleteness or error herein; and (e) is provided in a draft condition
“as is” and any reliance upon the content shall be at user's own risk and responsibility. If any of these terms is invalid or unenforceable,
the continuation in full force and effect of the remainder will not be prejudiced. Copyright © Baringa Partners LLP 2017. All rights
reserved.

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