Power NI Power Procurement Business

Managing market uncertainty with IBM

Published on 06 Jul 2012

Validated on 02 Jan 2014

"We are completely satisfied by the way that IBM delivered this project. The quality of work was exceptionally high, and the analytical models and tools that the team developed have been instrumental in guiding us through the changes to the market and to our role in it over the last few years. The processes and tools that IBM Global Business Services have put in place allow us to make much better strategic decisions." - David Macartney, Commercial Manager of Power NI

Customer:
Power NI

Industry:
Energy & Utilities

Deployment country:
Ireland

Solution:
Business Performance Transformation, BA - Risk Analytics, BA - Predictive Analytics

Overview

Power NI (formerly NIE Energy) is part of the Viridian Group and one of the largest electricity retailers in Northern Ireland. Power NI’s Power Procurement Business (PPB) is responsible for purchasing power under long-term contracts (Power Purchase Agreements) from independently owned generators and selling that power directly to a spot market pool.

Business need:
The introduction of a Single Electricity Market across Ireland introduced considerable organisational change for Power NI’s Power Procurement Business (PPB). It needed to develop a completely new set of tools and capabilities that would allow it to effectively meet the requirements for operating in this new market environment.

Solution:
IBM Global Business Services® worked closely with PPB to build a set of analytical tools and models which help the company to determine its electricity and fuel hedging strategies.

Benefits:
Created a range of analytical models and tools within a tight deadline, enabling PPB to meet the requirements of its new role in the single market. Helped to optimise the management of price- and volume-risk, minimising the chance of financial loss.Considerably reduced the time taken to manage electricity auctions with a custom-designed auction management tool.

Case Study

Power NI (formerly NIE Energy) is part of the Viridian Group and one of the largest electricity retailers in Northern Ireland. Power NI’s Power Procurement Business (PPB) is responsible for purchasing power under long-term contracts (Power Purchase Agreements) from independently owned generators and selling that power directly to a spot market pool.

Meeting the uncertainties of the market
The establishment of a Single Electricity Market (SEM), which merged the electricity markets in Ireland and Northern Ireland in late 2007, created significant changes for PPB. The business was required to sell all the power it purchased from generators into a market pool, where it would be purchased by electricity supply companies. A major challenge posed by the creation of the SEM was the management of price exposure: the price of electricity in the SEM is volatile and hard to predict, posing a large risk to PPB. It was therefore necessary for the business to enter into contracts for differences (CFDs) with suppliers, to manage market price exposure.

David Macartney, Commercial Manager of Power NI, explains: “We had just under two years before the single market was established to develop a completely new range of capabilities and ways of working that would enable us to comply with all the new rules and regulations. It was a very intense time, as this was uncharted territory for all of us. We were responsible for handling a turnover of roughly half a billion pounds, and we needed to rapidly develop a host of new tools that would allow us to better manage our exposure to new market risks.”

Successful partnership
IBM Global Business Services was appointed to provide services which would help the business through the challenges of entering into the new electricity market.

“The collaboration with IBM Global Business Services was very hands-on; we had a team of experienced consultants working alongside us at our offices over the two years leading up to the establishment of the all-island electricity market,” states Macartney. “This was vital in helping us to find the solutions that best fit our needs as we moved towards operating in a new market that introduced considerable changes to the ways we worked as a company.”

Powerful analytical tools
A large part of the project involved designing and implementing a set of analytical models and tools, which would be used to design energy trading strategies and to enable the company to auction electricity derivatives to hedge its risk in the market.

One of the first applications that IBM developed was the Auction Management Tool, which helped PPB to manage the electricity auctioning process. As the contracts being auctioned can often be valued at millions of pounds, it is essential that well designed analytical tools are available for the company to manage its risk management activities.

The Auction Management Tool helped to ensure that the operational risks associated with hosting auctions are mitigated and that auction participants can submit bids based on the correct information. By using the application, PPB was able to reduce the time taken to determine auction results from an hour to a few minutes.

Additionally, the Strategic Analysis Application, developed by IBM Global Business Services, helps the company to analyse historical costs and revenues, and forecast for the future with scenario planning. This is important, not least because of the high degree of price- and volume-risk involved in the auctioning of electricity.

PPB has been operating successfully since the SEM came into operation in November 2007. Thanks to its partnership with IBM, the business has been able to embed new processes into daily operations and take advantage of robust analytical tools to manage the pricing and auctioning of electricity derivatives and to better understand and control risk.

Macartney concludes, “We are completely satisfied by the way that IBM delivered this project. The quality of work was exceptionally high, and the analytical models and tools that the team developed have been instrumental in guiding us through the changes to the market and to our role in it over the last few years. The processes and tools that IBM Global Business Services have put in place allow us to make much better strategic decisions.”

Components

IBM products and services that were used in this case study.

Service:
GBS BAO: Advanced Analytics and Optimization, IBM Global Business Services

Legal Information

© Copyright IBM Corporation 2012 IBM United Kingdom Limited PO Box 41 North Harbour Portsmouth Hampshire PO6 3AU Produced in the United Kingdom June 2012 IBM, the IBM logo, ibm.com and Global Business Services are trademarks of International Business Machines Corporation, registered in many jurisdictions worldwide. A current list of other IBM trademarks is available on the Web at “Copyright and trademark information” at: ibm.com/legal/copytrade.shtml. References in this publication to IBM products, programs or services do not imply that IBM intends to make these available in all countries in which IBM operates. Any reference to an IBM product, program or service is not intended to imply that only IBM’s product, program or service may be used. Any functionally equivalent product, program or service may be used instead. All customer examples cited represent how some customers have used IBM products and the results they may have achieved. Actual environmental costs and performance characteristics will vary depending on individual customer configurations and conditions. IBM hardware products are manufactured from new parts, or new and used parts. In some cases, the hardware product may not be new and may have been previously installed. Regardless, IBM warranty terms apply. This publication is for general guidance only. Photographs may show design models.

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