Here are 3 reasons why companies need to be good at energy optimization and better at their cost management.

1. Impacts of green energy transition

Green energy transition creates its own challenges for energy management in organizations. Because of the nature of green energy, production varies much more than in conventional energy sources (e.g., coal, nuclear). This fluctuation can be somewhat managed with batteries and compensations from conventional energy sources, but the fluctuation will become bigger than what we are used to. 

There have already been days when the difference between forecasted wind energy and actual wind energy production has been remarkable, causing some interesting situations in the market. For example, on May 28th, the wind forecast in the FI market area was close to 4500 MWh an hour, but the actual production was 700 MWh less. This happened to be Sunday, but luckily there was much more production than demand (9000+ vs. 6000+ MWh), which did not cause any significant turbulence for market prices. 

Picture: Wind forecast and actual production market area FI on 28th May 2023. Source: Fingrid.fi.

These fluctuations mean that companies need to be able to react better in the intraday market and be able to forecast their energy consumption and optimize production plans at a faster pace. Some organizations might still operate with forecasts generated once a day or once for a weekend, but this will not be sufficient in the coming years. Companies without proper forecast and optimization tools pose a risk of high energy costs due to bigger market fluctuations.

2. Alternative energy sources

Companies need to consider new energy sources, for example, in their production lines. Even though the natural gas price in Europe has come down remarkably from last year’s peaks, it still makes sense for companies to consider at least having alternative energy sources for their production. With energy optimization tools, companies can simulate the impact of different energy sources on production costs. 

Of course, it takes some time to implement these changes, but now it should be evident to all companies that they need to start this planning process until the next price peaks start looming on the horizon. Natural gas prices in Europe might be normalized for now, but surprises should be expected. Estimating for example what will happen geopolitically in Europe in the coming years is difficult.

Picture: Natural gas price in US and in Europe 2014-2023. Source statista.com.

3. More granular imbalance settlement

Nordic countries (Finland, Sweden, Norway, and Denmark) switched already to a 15-minute imbalance settlement on May 22, 2023. This means that the forecast accuracy needs to be much better in the future in order to make correct spot and intraday trades and avoid excessive costs caused by bad forecasts. If a company’s production runs, for example, in batches that take more than 15 minutes, they need to be able to forecast these batches better, or they might face issues of under or overrunning the 15-minute slots. 

Also, the trading tools used need to match with a more granular base of trading activity. One needs tools that can provide the latest updates to the pricing strategy for every 15-minute slot using modern integration methods. 

Source: esett.com

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