by Alan Gunn, SunGard
Many utilities are expanding their portfolios of power generation assets, and as older coal-fired plants retire, utilities are deciding what must replace them. Although some of the older plants are candidates for retrofitting to natural gas, some will be forced to shut down.
As utilities retire these large, centrally located coal facilities and transition to smaller, more numerous and geographically dispersed gas-fired plants, many find themselves increasingly exposed to new and more complex markets in which to purchase, manage and deliver their fuels.
In addition, for companies that own or interact with other generation assets such as nuclear, wind, solar or hydroelectric, the mix of supply, location and demand can create a significantly complex operational environment. Historically, strategies have been developed by applying least-cost methodology in which the least expensive resources are simply added instead of analyzing complete portfolios. Consequently, this methodology is biased in favor of fossil fuel-based generation assets and might not appropriately analyze the benefits of adding nonfossil fuel technologies to generation portfolios, especially renewable energies.
As this complex environment of rising demand for power and mix of generation supply grows along with ever-increasing emissions regulations, the need to optimize asset portfolios will become the key management issue for power market participants, especially power generators.
The ability to meet these challenges can open opportunities for generators. Companies that can continually extract the most value from their existing portfolios while investing in the future will be the leaders in this changing marketplace.
From the viewpoint of the complete generation asset portfolio, shared information can drive systemwide optimization. Deeper integration can lead to more efficient operations, reduced maintenance and fuel costs, less unplanned downtime and lower emissions. Power producers can manage overall production holistically for the best business outcome, taking into account many factors across the business.
A producer optimizes revenue and profit by running the right plant at the ideal time and level. Insight is vital to making these choices. The need for deep understanding applies to the markets for fuel, emissions and electricity. Even with the trend toward gas-fired plants, running an older coal plant might be more beneficial than operating a cleaner facility. Or, with the right market conditions, it might be more profitable to sell fuel stockpiles and associated emissions credits than to generate power.
To help manage this complexity, many companies are turning to solutions that comprise a set of analytical and trading tools along with physical and financial management systems that allow them to quantify and understand risk exposure and gain insight.
Optimization solutions for power-related enterprises can be applied across the entire life cycle of power, from the acquisition of fuels to generate power to the marketing and trading of power. Generation fueled by natural gas, coal, nuclear, solar, wind and hydro can be managed much more efficiently by capturing and managing all parameters of each asset in the power generation portfolio.
The ability to apply these capabilities can help generators account fully for market complexity. There might be multiple, overlapping regulations that apply to emissions and renewable generation or an active market in carbon trading. With an optimization-driven view of all market forces, generators can find the right balance in each day’s decisions to meet load obligations, better maximize profit and manage risk. They can sell fuel or burn it, choose the most appropriate mix of generation and balance emissions costs against revenue.
By applying advanced analytical tools to help optimize fuel supply, emissions and wholesale electricity markets, owners of multiple power generation assets can minimize uncertainty and reduce portfolio risk as they improve the agility of the assets and drive investment through scenario-based analyses.
Generators can make informed decisions on future generation investments while making the most of existing generation assets.
Alan Gunn is vice president of SunGard’s energy business and is responsible for managing the North American sales organization. He has more than 24 years’ experience in providing solutions to the energy and commodities industry with extensive experience in energy trading, risk management and physical energy operations solutions. He has a bachelor’s degree in accounting from Texas A&M University.