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European Power Logistics - The next step in reducing operational risk
A ComTechAdvisory Whitepaper
EUROPEAN MARKETS ARE CHANGING
European power trading is changing. Today, trading margins are harder to find, and operational
risks need to be managed in order to ensure that those meagre profits are not lost through
penalties and/or inefficiencies. This means managing the trading business more effectively,
driving costs out of the business process, and guarding against errors and oversights that can
create additional costs.
With political objectives and targets to reduce CO2
emissions, the EU has actively encouraged a move
to renewable generation (and aided somewhat by
Germany’s abrupt decision to exit nuclear generation
in the wake of the Fukishima disaster). As renewable
generation is less predictable, largely depending on
wind and solar in most locations, this transition has
required the development of intraday markets where
15-minute trading increments can help to smooth out
some of the supply/demand volatility. At the same time,
the EU has been pushing for a single market across
Europe and has made significant progress toward this
objective via market coupling initiatives. Of course, in
moving to coupled markets, quite a bit of pricing basis
has been eliminated impacting trading strategies and
returns. In terms of demand, regulations and incentives
to move toward a lower carbon footprint is also changing
consumer behavior and altering demand profiles, for
example the greater use of electric vehicles and off-
peak appliance usage are some of the trends that will
undoubtedly continue.
Such radical change over a short period of time inevitably
strains the system and requires careful planning and
execution. Impacted infrastructure will require the
inclusion of batteries or other power storage strategies
in the generation mix to ensure power supply security
when the sun doesn’t shine and/or the wind doesn’t
blow. Greater usage of residential or commercial scale
solar and wind will require the power grids to allow for
two-way flow, smart meters, and smart grid management
devices as well as enhanced cross border capacities
and smart grid development will demand that data and
communication standards and protocols are harmonized
to ease integration and minimize issues and costs.
Other issues include resistance or delayed adoption in
certain national markets via regulatory or administrative
procedures, price distortions due to artificial support
and incentives for what might otherwise be uneconomic
renewables and physical limitations in cross-border
capacity.
Despite this, we do continue to see significant and
growing interest in intraday and cross border trading.
The growth in cross-border trading of electricity has
and continues to allow for more flexible integration of
renewable generation while improving the grids ability
to balance demand and supply variations.
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