In the ever-evolving landscape of the energy transition, effective utility risk management stands as a linchpin for utilities navigating the complexities of a shifting resource mix.
This blog post delves into the challenges at hand and underscores the pivotal role of utility risk management in mitigating operational and trading uncertainties.
As a regulated utility, SDGE’s revenue model is distinct, earning profits not by selling more energy but by efficiently building infrastructure and delivering power. Regulated by entities like the California Public Utilities Commission (CPUC), utilities face intense public scrutiny, driving them to adopt risk-averse strategies.
Operational and trading risks in energy transition
The energy transition introduces a heightened spectrum of operational and trading risks for utilities.
Let’s explore some key risks shaping the industry landscape:
1. Load volatility
Increasing load volatility, driven by factors like load growth and the integration of local solar and energy storage, poses challenges for utilities in forecasting and managing energy demand. This volatility impacts the maximum energy demand and ancillary service requirements, necessitating careful assessment within utility risk management.
2. Renewable volatility
Solar and wind resource production are dependent on weather conditions. The dependency introduces uncertainty due to inaccuracies in forecasts. Weather variations, such as summer thunderstorms, can impact energy production differently across regions as the storm moves. Accurately forecasting energy production from weather-dependent resources becomes a critical aspect of managing renewable energy risk.
3. Outages and derates
The likelihood of generation and transmission outages continues to rise. Aging thermal resources have increasing outage rates. Ironically, newer technologies contribute to unplanned system disruptions as the newer technologies are maturing in the field. Winter Storm Yuri and localized events underscore the vulnerability of the grid, emphasizing the need for robust risk modeling that considers potential outage scenarios.
4. Purchase-delivery volatility
Electric power trading involves the risk of the seller being unable to deliver power as scheduled. Utilities must assess the risk of deliverability, ensuring contingency plans are in place to secure power from alternative sources in case of unforeseen circumstances. This is a critical aspect of risk management in utilities.
5. Price volatility
Increasing reliance on renewable resources and the role of natural gas in energy supplies contributes to heightened price volatility. Fluctuations in energy prices demand careful evaluation of potential scenarios and their associated costs. Fuel prices fluctuations illustrate the importance of enterprise risk management for public power utilities.
Mitigating risks with ETRM solutions
In the face of these challenges, utility leadership shoulders the responsibility of explaining the risks, costs, and mitigation strategies to the public. Having robust Energy Trading and Risk Management (ETRM) solutions becomes imperative. At PCI Energy Solutions, our ETRM solutions, specialize in energy trading and optimization. This positions us as a natural partner for regulated utilities navigating the energy transition.
As utilities traverse the energy transition’s complexities, the importance of effective utility risk management becomes increasingly evident. The ability to model risks, quantify costs, and visualize insights are paramount, making ETRM solutions a crucial asset in the utility toolkit.
Interested in learning more about how PCI provides enterprise risk management for public power utilities and other utilities? Learn more on our ETRM page.