There are two primary ways energy asset owners can manage their generator and energy storage resources — they can contract with a third-party provider through an Energy Management Agreement (EMA) or handle them in-house. In this blog post, we’ll explore the role of EMAs in energy trading strategies and considerations for asset owners contemplating bringing trading activities in-house as existing EMA contracts expire.
Energy Management Agreement definition
Energy management agreements are contracts between energy asset owners — such as generators, storage operators, or renewable energy providers — and third-party energy management service providers. EMA service providers are experts at optimizing energy assets and managing energy trading, dispatch, and risk management on behalf of the asset owner.
While the terms are sometimes used interchangeably, EMAs are not the same as energy management service agreements (EMSAs). While an EMA aims to maximize the financial performance of energy assets, EMSAs focus on reducing energy consumption and costs through a broader range of services, such as energy audits and the implementation of energy conservation measures.
The role of EMAs in energy trading strategies
Energy management agreements can play a pivotal role in developing and executing energy trading strategies. Third-party energy providers leverage specialized market knowledge and analytics on behalf of customers in the following areas:
- Market access and trading: EMAs can enable asset owners to participate in wholesale energy markets, capitalizing on energy trading opportunities. The third-party service provider tailors its trading energy strategies to maximize revenue, minimize losses, and balance energy supply and demand based on real-time and day-ahead market signals.
- Risk management: EMAs provide comprehensive risk management solutions that include hedging against price risks and managing imbalance penalties. These are particularly important for renewable energy assets due to their intermittent nature. Additionally, EMAs ensure compliance with regulatory standards, avoiding fines or other regulatory issues.
- Asset performance optimization: EMAs can handle the scheduling of generation and storage assets, ensuring optimal performance during peak pricing periods. Optimizing asset operation and maintenance can directly impact revenue and asset longevity.
Is the future of energy trading in-house?
Of late, many asset owners are reconsidering their EMA agreements with energy management service providers. As contracts come up for renewal, some asset owners are opting to bring their energy trading back in-house. There are several things asset owners should consider as they decide which strategy best suits their needs.
- Expertise: Third-party providers offer expertise in energy market investment, risk management, and compliance. Asset owners should consider whether they have the technology, personnel, and knowledge to bring these functions in-house — and, if not, the cost to develop those aspects of the organization.
- Flexibility: In-house trading may offer greater flexibility in the face of changing market conditions; however, this requires resource-intensive market engagement.
- Operational and financial efficiency: Tasked with improving the efficiency of energy production and distribution, EMAs can maximize revenues and minimize the expenses associated with energy assets. Asset owners should analyze the current performance of their EMA provider to determine if bringing these functions in-house will be more cost-effective.
Optimize your assets with PCI Energy Solutions
Discover how PCI Energy Solutions’ energy trading system — which includes GenManager, ETRM Platform, and GenTrader — can enhance decision making and help optimize energy market participation, whether you’re an EMA service provider or an asset owner. Learn more on our Energy Trading & Optimization Solutions page.
