Understanding power markets
Antuko offers to share knowledge with its clients through its Consulting Services, be it at a basic level of a developer looking for a country overview, or at a deep level of a financial institution wanting to analyze the expected cash-flows of a portfolio of assets facing a particular PPA awarded in a nation-wide auction.
Each power market is very specific to its local reality. Even if most markets work on a merit-order basis in order to build their generation matrix, some allow their members to place offers for the energy they are selling or buying, some other markets don’t, in which case it is the market operator (or TSO) that decides which generation technology has priority and at what price. Some markets compute a single price for a whole country, some others have multiple prices calculated at the level of each individual node, which requires a thorough understanding of the transmission system and the power flows is fundamental.
The need to understand
The decision to look at a particular power market is normally taken based on price opportunities: high spot (or pool) prices, a particular tender organized by the local authorities to attract developers and generators with the prospect of an attractive PPA. But being in a market over the long term requires a deep understanding of many aspects of its operation: what legal structure is required? What day to day interaction is expected with the local market? Is a generation unit expected to place hourly orders on the market? or is it done automatically? How does the cash flow operate for a generation unit? What are its income sources? How are energy prices calculated? Capacity prices? Green certificates? How is the invoicing done? Does everything go through the TSO and a central clearing, or is there a need to issue invoices to other market participants? etc…
Antuko understands the markets it covers because the activities it carries out in each of them require a thorough knowledge of all their details:
- Projecting power, capacity, and green certificates prices implies an understanding of how a market is constructed, its players, their strategy, the expansion of the system in terms of generation, transmission and demand, the impact of commodity prices over the generation mix, the impact of climate variables over the generation mix, etc.;
- Advising banks, investors, and developers on the financing of generation assets requires an understanding of all the variables that locally affect the development, construction, and commercial operation of a generation unit over its life span;
- Undertaking the asset management of power plants implies a hands-on knowledge of the day-to-day operation of the generation assets, and their interaction with the local markets: placing hourly orders where required, managing real PPAs with their particular clauses, invoicing, payments, cash flow follow-up, operation and maintenance, relation with stakeholders, etc.;
- Proprietary energy trading implies skin-in-the-game in the markets, understanding how market participants interact, how prices are formed, how transactions are closed, how deals are eventually broken;