June 10, 2024 The Need to Weave Agility Throughout an Energy Business

This article explores how to make marginal gains through weaving agility into the very fabric of the organization.

With geopolitical tensions, more extreme weather events and the legacy of a global pandemic, it is more difficult than ever before for energy suppliers to preserve their margins and remain competitive. To thrive in the current climate, supplier’s need to make marginal gains wherever they can. One way to accelerate this is to weave agility into the very fabric of the organization.

Three pillars to success

There are three pillars to profitability within the energy sector. The ability to manage risk, forecast accurately, and adapt swiftly. Unfortunately, managing risk can be exceedingly difficult as each day is a moving target. Yet, a minor misstep in risk management, caused by an error or faulty data, can swiftly plunge an energy supplier into financial trouble or even lead to bankruptcy.

To help manage risk it is important that energy suppliers centralize disparate data to ensure transparency across their risk management teams and executive stakeholders. Comprehensive data integration is crucial for effective risk management. It encompasses everything from demand forecasting and hedging to scheduling, daily settlements, churn analysis, and book valuation.

When it comes to accurate forecasting, the same is true. However, many suppliers are limited by manual, outdated tools . Without timely access to the requisite data, it is difficult for them to forecast accurately. This can lead to poor positions that cause margins to shrink and lead to higher prices for customers.

The market is more dynamic than ever before. Whether it is changes to rules and regulations, unexpected weather events, or large-scale customer signup and churn, it is important that an energy supplier can quickly react so that they can buy the energy needed as efficiently as possible.

Intelligence and insight

To be agile requires intelligence and insight. The advent of smart meters has helped provide a window into what energy customers use and when. However, the industry has been slow to move towards them, with global penetration currently languishing at 43%.

Other barriers to agility have been financial. In 2024, there remains a credit crunch within the industry, with suppliers rarely being given attractive lines of credit for the energy they need to buy. Energy Suppliers need to, therefore, establish risk management policies and procedures internally. They must also understand the impact of risk measures such as Value at Risk (VaR) which can be used as part of the calculation to require cash and collateral from the supplier. Energy suppliers that use VaR as a daily risk measure can also show stakeholders that they have implemented a level of sophistication that is protecting the liquidity of the organization.

Then there is the fact that, whisper it, there can be a knowledge base issue. Many energy suppliers have been set up by brokers who do not understand the nuances of being one.

Sifting through the data

Another huge barrier to agility is the difficulty unlocking the insight held within the ever-growing data mountain. The widespread move towards renewables, though to be applauded, has only made the problem worse. There is more data than ever before, with the industry generating around200 exabytes of new data per year. Much of this data, however, is locked within older, custom software systems that can be difficult to integrate.

Thankfully, there is now technology available – underpinned by artificial intelligence (AI) and machine learning (ML) – that can sift through this mountain of data in a timely manner, providing a pathway to agility. One of the main benefits of AI and ML models is that they can be constantly retrained and are granular right down to the individual meter level. This makes them extremely accurate and circumvents the inaccuracies common with manual data entry. During extreme weather events like the 2021 Uri storm in Texas, AI can quickly validate and extrapolate mountains of new data, enabling suppliers to manage such crises effectively and avoid catastrophic losses.

Making the right decision, first time, every time

The energy industry has never been more competitive. Yet, it has coincided with an era of unprecedented weather extremes. This in turn has led to unprecedented price volatility. With margins so tight, price too high and a supplier will be priced out of the market, price too low and they will lose money.

To stay competitive, energy suppliers must swiftly respond to market dynamics by embracing tools that are accessible from anywhere and rely upon automation to analyse real-time data. This way, suppliers have the intelligence and insight to make the right decision, first time, every time.

About the Author:
John Craig Swartz is SVP of Risk360 at respected energy software provider POWWR.

Swartz has been with POWWR for over 12 years and has been instrumental in turning it from a consulting company into the software company it is today. He has helped run suppliers’ risk management and day-to-day operations and had roles focused on building out software. He is now in charge of the risk portfolio within POWWR, ensuring that the company gives its partners the value they need to ensure they can compete in an increasingly competitive environment.

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