The Ongoing Evolution of ETRM: Five Trends

As always, each new year brings a desire to do things better or more efficiently bolstered by sets of new goals and resolutions. At Hitachi Energy, a single goal never changes, and that’s our commitment to approach every engagement with our existing and prospective customers with one objective in mind: ensuring their success and satisfaction. We want them to know how our ETRM solutions will benefit their operations through increased process efficiency, cost reduction, minimization operational risks and maximizing business opportunities. As a true pioneer we continuously innovate, living up to our hard-earned reputation of delivering next-generation solutions that the market demands. We do exactly that, when looking at some of the trends below.
 

1. ETRM is following the market
   
   The transition towards a zero-carbon economy will be largely achieved through electrification. This is arguably a market dislocation event which introduces a new set of requirements. Specifically, renewable energy is overtaking fossil fuels such as oil and coal the world transitions to cleaner energy solutions. The Top 4 sources of clean energy are solar, wind, hydro, and natural gas (one of the mainstays of global energy, per the IEA). With this perspective, when evaluating and selecting an ETRM system, the market participant’s emphasis now is on capabilities that support those energy commodities instead of the legacy fossil fuels. In other words, an ETRM system built for crude, oil products, and coal trading are considered legacy, whereas an ETRM system excelling in electricity, natural gas, biofuels, energy attribute and emission certificates - while providing sufficient functionality for legacy commodities in the interim -, is the preferred choice.
   
   
2. Value creation through Back-to-Front orientation
   
   There is recognition that energy companies need to extract more value from their complex portfolios. Digital transformation is enabling changes where value is created. The co-creation of value together with customers towards ETRM functionality is derived by thinking about it backwards. Think use-case-centric approach what the back-office needs to produce (reporting, contract settlement, certificate management etc.) and then walk backwards from that goal. Also, ‘backwards thinking’ is a type of cause-and-effect thinking; had you looked at the back-office more carefully - then, you would have been able to get out what you put in - now. However, while many ETRM offerings are called next-generation, few were conceived with the back-office as a starting point. Today, forward thinking companies are starting at the back for value realization and building the path all the way to the front. It offers not only a strong foundation to respond to market challenges, it will be a game changer!
   
   
3. ETRM ‘Out of Office’
   
   The COVID-19 pandemic has pushed us all to working on-line. It was also a stress test, where those that relied on cloud-based solutions enjoyed minimal disruption, and those who did not yet, scrambled to provide remote access to critical applications. Initially assumed as a short-term event, working remotely looks like something that is here to stay in some shape or form, and it is also accelerating digital transformation. The pandemic has provided an ‘Aha moment’ that a transition to cloud solutions having a lot more to do with overcoming cultural issues than they do with technology. In general, a large portion of the workforce holds a job that is compatible (at least partially) with remote work. The commodity/energy trading world is no exception. Generally conservative and risk averse, market participants have come to realize that on-premise installations are not well-suited to quickly support remote access by staff. At the same time, there might be more appreciation for how much of their critical business had previously relied on communicating via the internet, thereby countering misguided concerns. Business as usual doesn't exist anymore as we are accepting the new reality where, like the well-known email auto-reply message, both trading staff and ETRM system may forever and never be 'out-of-office'. 
   
   
4. The Network and Subscription Economy
   
   The world is moving from products to services. Enabled by the Digital Age, buyers’ expectations have changed over the last several years where they have become subscribers moving from a product economy to a subscription economy. The combination of high upfront costs, the hassles of ongoing maintenance, and the frustration of technological obsolescence has also made ETRM system buyers move towards innovative business models based on services. Consequently – and accelerated by the COVID-19 crisis - cloud-based Software-as-a-Service (SaaS) C/ETRM solutions are overtaking traditional delivery software. With “as-a-service” it is not the product that is central, but a total solution as a service to meet a specific need of customers. In the software market, SaaS for the customer means no longer owning a perpetual license that’s paid upfront, and no on-premise equipment (software/hardware) that needs to be maintained and likely upgraded down the road. Instead, software is delivered as a service, with only the need for an internet browser to access from anywhere and sold on a subscription basis. And as a true digital product, contracts can be paperless saving some trees for a more sustainable world.
   
   
5. New ETRM: Planning + Trading
   
   In an environment where both the design of wholesale and retail markets is changing and their complexity is increasing, the traditional ETRM solution is falling short of navigating this on its own. Successful and innovative companies constantly evaluate markets to understand the effects of tightening regulations, resource constraints, market volatility and environmental pressures. It's crucial to operate in a competitive market. Equally important are the right insights, economically or technically, to take advantage of market opportunities and risks, from future grid constraints to curtailments, in an optimal way. Supporting the entire cycle from market intelligence to market access, not only requires an ETRM system that excels in a world moving towards electrification but one where operational analytics (planning), finance and risk (commercial operations for forecasting, market communication, trading) modules are brought together under one umbrella. Not through a monolithic system but instead by leveraging modular solutions, almost as a vertically integrated ecosystem of functionality delivered as a service or software. This larger end-to-end footprint, covers the journey from renewable asset investors all the way to established wholesale electricity market participants and provides tangible benefits to meet the specifics of the customer's goals to navigate the energy market with ease for more effective and efficient operations.

Learn more about energy trading and risk management (ETRM) from Hitachi Energy.