The energy industry is undergoing significant changes, especially in its generation portfolio. As a result, the framework and terms (e.g., prices, maintenance, min/max limits, etc.) embedded in Power Purchase Agreements (PPAs) have grown in parallel with the transition away from fossil fuels and toward renewable energy.
As corporate interest in clean energy proliferates, PPAs are changing and becoming increasingly complex, driving market participants to license powerful, configurable contract management tools to help achieve renewable energy targets and enhance organizational success.
The role of the Contract Management (CM) function and responsibilities of settlement staff are also expanding, partially due to the analytical and reporting capabilities built into today’s software systems. Contract management in the past was less streamlined and involved a more chaotic (and less automated) month-end close process characterized by longer staff hours, frustrating bottlenecks, and tedious manual reconciliations across multiple systems.
The evolution and structure of PPAs and options will continue to compel energy market participants to close the ambition gap with stakeholders to achieve fast-approaching and growing renewable energy targets.
Today’s CM systems must communicate seamlessly with the general ledger in a Sarbanes-Oxley (SOC)-compliant context to continually refine multiple contracts’ modeling, optimization, and management. PCI’s Contract Management solution is part of a comprehensive suite of energy enterprise software tools built on the PCI Enterprise Platform. It offers enhanced integrity of data, in addition to real-time analysis of financials and operating performance while flexibly modeling contracts so you can stay current with a rapidly changing marketplace.
Analytics, Visualizations & Reporting: Importance & Benefits
Tailored dashboards allow market participants to more efficiently manage invoices according to enterprise requirements and standards. In addition, PCI partners with our clients to develop invoicing logic and trains all business users/super users.
Numerous PCI clients are party to multiple hydro, biomass, wind, and solar renewable energy contracts (RECs). In addition, several companies have now added battery storage to their portfolios, which has resulted in a broader mix of receivables and payables. For settlement analysts, PCI delivers dashboard capabilities and an overall user experience (UX) that fosters fast, easy validation of data and the ability to move it to other systems, such as an Enterprise Resource Planning (ERP) solution.
PCI also facilitates downloads for all market prices and generation data into a central repository to allow real-time analytics. At a high level, PCI’s CM solution is developed to:
- Respect internal, two-step approval control logic
- Support reviewing, approving, recalculating, adjusting, and all other workflow elements related to energy contract processing
- Group contracts per prescribed charges and different settlement characteristics
Many additional users, IT, and enterprise benefits to implementing a contract management platform like PCI.
Benefit 1: Time & Effort Savings
- Save valuable staff time by reducing forensic work among settlement analysts, front office, and energy supply personnel who collaborate to accurately determine the optimal management of all market contracts.
- Gather real-time as opposed to waiting for preliminary month-end estimates
- Contract management data can be automatically mapped straight to your GL.
Benefit 2: Scalability to handle any type of contract – anywhere
Every day, teams reconcile dozens of energy and capacity contracts with diverse pricing and delivery terms. Moreover, with the advent of battery storage, constantly shifting market rules, and enhanced optionality, a new generation of very detailed RECs is guaranteed to become even more complex domestically and internationally, as energy companies throughout Europe and Australia expand their portfolio of renewable PPAs.
PCI has engineered broad and deep functionality into our entire Enterprise Platform, including the CM solution to efficiently process, record, track and settle any type of contract.
- Successful enterprise energy strategies dictate flexible and configurable software systems linked to your ETRM solution. For example, suppose a twenty-five-year PPA undergoes a renegotiation. In that case, the last thing you want to do is waste time with a constrained, inflexible solution requiring precious IT resources and dollars to scales and constantly reconfigure.
- The PCI CM tool affords you the flexibility to adapt to changes within the proper set of controls.
- PCI calculates variable rates or average index rates based on contract formula specifications for hourly or monthly calculations and distinguishes between various rate categories.
A constantly shifting energy market landscape demands CM systems that allow flexibility in creating new contracts with different performance requirements and can quickly make modifications when contracts are renegotiated, performance requirements upgraded, etc.
Benefit 3: Operational Performance Management
Peter Drucker is the person most credited with inventing modern business management, and generated perhaps the most important quote in the field when he said:
- “If you can’t measure it, you can’t improve it.”
Translation: If you can’t measure every part of your enterprise, you can’t manage or grow it.
Best-of-breed CM systems help ensure Drucker’s prophetic statement is realized by delivering real-time monitoring and measuring of contract operational performance. PCI’s solution measures performance and delivers reporting and KPIs on various frequency cycles to help you ascertain answers to critical questions such as:
- When and how was an energy shortfall triggered?
- Did a renewable project exceed PPA requirements that initiated a new rate?
- What would the adjusted generating capacity of a solar facility have been in cases where the actual output was lower than the asset’s total capacity?
While PCI’s CM solution has many ROI streams, one is derived from its ability to quickly answer crucial questions that are only growing in frequency given the evolution of the industry.
The chart below reflects the standard and faulty operation of a PV system after a first cleaning iteration. The cleaning limits for the different irradiance intervals are also shown.
(Source – CanmetENERGY in Varennes)
Benefit 4: Data Validation & Integration
It’s vital to validate the efficacy of your contract data before performing meaningful financial or operational analyses that Board or City Council members might utilize to make enterprise commitments or strategic course corrections. The information being fed into a CM system often comprises many thousands of data points. Meter data and market prices, along with dozens of other variables, must be thoroughly vetted. The market rules and rule changes that consistently arise to (often) notably alter how contracts are tracked, managed, and analyzed.
Why waste hours looking for a needle in a haystack?
PCI’s Contract Management tool provides analysts with a wide array of capabilities for data validation. It easily imports, verifies and serves up all the requisite information to conduct contract analyses customized for any organization, large or small.
Conclusion
Public policy goals, economics, and uncertain federal tax incentives all strongly point to a sharp increase in the addition of large-scale renewable energy projects backed by complex, optionality-rich PPAs. In addition, technology advances like BESS and smart grids will help ensure the transition, as will the increasing importance of peak shaving and evolving ancillary services.
Predictions for the future include more highly curated and complicated contracts that best suit off-takers with varying levels of consumption and risk tolerance.
Contract management is critical for any project to succeed and for market participants to obtain a competitive advantage. The PCI Contract Management solution, coupled with our comprehensive Energy Trading & Risk Management (ETRM) system, is a robust and highly scalable, adaptable solution that optimally handles deal capture, energy accounting, contract settlements, reporting, and more.
For more information or to schedule a system review, email us at your convenience.
