AU2003100851A4 - Business Energy Portfolio Management System - Google Patents

Description

Australia Patents Act 1990 Specification Innovation Patent Business Energy Portfolio Management System(c) (EPMS(c)) The following statement is a description of this invention including the best method of performing it known to me.

Specification Description Energy Portfolio Management System (EPMS(c)) Energy Trading is recognised as the most difficult, volatile and complex commodity trading market in the world. The Energy Portfolio Management System (EPMS) is designed to provide business with a structured methodology and process for optimising and structuring their energy purchases into a total business portfolio within their business's unique energy risk profile. This allows business to reduce energy spend, therefore increasing their bottom line as well as gaining a competitive advantage in their domestic and international markets. Currently major electricity users do not have structured energy methodologies or systems to determine an optimised Business Energy Portfolio Strategy (BEPS(c)) for energy purchasing i.e. they buy the most expensive energy for their business.

For many years large electricity users have bought electricity (energy) 1 from energy retailers primarily using a fixed price, fixed term contract structure. Traditionally energy retailers have been government monopolies with specified geographic areas i.e. Queensland Energex, Ergon, NSW Integral, Energy Australia, etc Retailers are middlemen who buy their energy primarily from generators and on sell to business.

Businesses currently pay a marked up price for energy when they could go direct to generators and other market participants. Since deregulation in the new electricity market there have been numerous sources and ways businesses can buy energy, depending on their Business Energy Risk Profile (BERP(c)).

However, due to lack of competition in energy retailing and lack of big business knowledge in energy trading large electricity users still buy most of their energy from electricity retailers in the same way as before deregulation. The process for buying electricity has basically remained the same and big electricity users have not benefited, costing Australian businesses hundreds of millions of dollars per year and international businesses far more. For some large businesses their energy costs can represent more than 60% of their overall total costs. EPMS is all about using a structured methodology to add substantial value to large energy purchasing businesses' "bottom line" by reducing energy overheads.

EPMS allows the business to either use the structured energy methodology process themselves with advice from energy specialists or to outsource their energy purchasing function to an energy specialist (Energy Portfolio Manager -EPM(c)) who can use the process, while the business still retains control of it. This invention has been specifically devised to provide large energy users with a product that allows them to source the most cost effective energy contract structure for their local and international operations within defined business risk parameters.

The Energy Portfolio Manager (EPM) EPMS is completely independent of banks, Government, electricity retailers and generators working solely for business. All savings, through contract structure, brokerage, bulk buying, etc are passed straight back to the business.

The EPMS invention analyses all available energy markets data for big energy users and takes energy (electricity) from the most cost effective market or source. EPMS provides a structure that combines energy analytical processes with business operations to create a flexible portfolio of energy contracts within defined risk parameters. The process manages these energy contracts, and adjusts energy positions for changes in the underlying commodity price and business operations similar to banks adjusting their position for movements in foreign exchange rates. The EPMS allows businesses to reduce their exposure to energy contract price fluctuations, free up cash-flow, reduce risk to shareholders and lenders and better utilise scare corporate resources.

EPMS allows an international or domestic business to centralise its energy purchasing functions in one location i.e. An international business headquartered in the U.S. can purchase energy for it operations in the Australia, Japan, NZ, etc, this also allows for international energy swaps.

Energy Portfolio Management System (EPMS) The EPMS product (described in Figure 1) in accordance with this invention comprises a structured methodology processes, questionnaire and associated spreadsheets databases for each process component. The EPMS enables businesses to create a cost effective energy purchasing strategy for them and to monitor and adjust their energy portfolio as required by changing market and business conditions.

The EPMS invention may be understood with reference to the illustrations of embodiments of the invention (Figure 1) and its processes-: The Figure 1 diagram is read from left to right i.e. Process 1 through to Process 6. Each box in each Process is read from top to bottom with the previous box (in most cases) needing to be completed before the following box beneath is started. Not all companies need all the analysis; the amount of analysis needed depends on the company and their energy objective.

Process 1 Business questionnaire Business's historical and forecast energy loads by half hour, maintenance and production schedules, embedded generation, data collection and other energy details and specifications are recorded from which the Business Energy Risk Profile (BERP(c)) strategy and energy analysis requirements are determined.

Process 2 Energy Pricing All available business energy purchasing options, solutions, volatilities and prices are considered. Energy prices are optimised against business loads, processes, production and maintenance schedules, etc and any other energy price considerations are taken into account.

Energy Pricing is broken into: Primary markets are where the majority of energy is brought and sold i.e. Pool Price, Generator and Retailer Offers.

Secondary markets are other businesses surplus energy contracts; other deals with private generators, businesses, partnerships, etc.

Government market is where the business negotiates direct with the government for the purchase of energy or Government subsidised energy.

Business's internal market is where the business uses it own embedded generation, maintenance and production schedules, curtailability and operation to minimise energy purchasing costs and maximise revenue.

Process 3 Analysis Information collected from processes 1 and 2 are combined with Market, Operational, Regulatory, Green Analysis, Business Energy Risk Analysis and Energy Portfolio Strategy to complete the business scenario energy data analysis and market overview. The sub processes involved in the "Analysis Module" are: Process 3.1 Market Analysis Looks at the electricity markets on a site-by-site basis, state-by-state and country-by-country, region-by-region then on an overall global basis taking into account the main drivers of future electricity prices.

Market analysis is broken down into: Market generation supply forecasts and market analysis, which looks at the current pool prices, historical pool prices and price drivers, etc in order to forecast future pool prices to produce a base pool forecasts.

Pool Price Scenario analysis is carried out taking into account "things" that could impact future pool and contract prices producing, low and high pool price scenarios.

Wholesale energy contract price and futures price analysis is carried out after scenario pool price analysis and is compared to actual wholesale market prices. Other analysis refers to any secondary market pricing analysis.

Settlement Residue Auctions (SRAs) price analysis is carried out for interstate hedging and interregional constraint modelling.

Ancillary services analysis is carried out and factor into cost of energy.

Business energy operational requirements scenarios now and in the future are carried out and factored into energy price forecasts.

Contract Duration (length of time) and duration price analysis is carried out for structuring of energy portfolios and contract market liquidity.

Process 3.2 Operations Analysis Operational synergies, revenue derived from operations, energy contracts and embedded generation across the group or partner companies are considered by operation, by state, then nationally, regionally and globally.

Operational analysis is broken down into: Business production curtailment by site, state, country, region and globally are considered.

Business operations (Operations research) are analysed to determine when it's better not to run operations and collect the difference between their contracted energy price and pool prices (curtailment) e.g. A coal mine runs a coal extraction operation, conveyor belts, crushing plant, etc the electricity is supplied at a fixed contract price $40 MWh if the Pool price (spot market) which changes every 5 minutes goes to $10,000 MWh then if the plant turns off during that period they received $10,000 MWh if they have a curtailment agreement with a market participant or are a member of the NEM, but loose the revenue for running the plant.

Energy Purchasing is managed from a single global point. (Figure 2 Global Book Structure).

Company energy synergies and other factors are considered across worldwide group operations with the goal being cost reduction.

Process 3.3 Regulatory Analysis Government and State regulators set the rules for the Energy and Green markets. This section is broken down into: Government Energy" and "Green" regulations and policies on a state, national, regional and global levels are considered and used to determine impacts on future energy prices in each area.

Business energy markets regulatory strategies are considered by state, country, region and globally.

Process 3.4 Green Analysis is broken into: Government and Kyoto current and future requirements concerning green house gases, emissions issues are addressed by state, country, region and globally. Green requirements taken into account and added into energy price scenarios. Operational synergies are look at in terms of green credits.

The business position on environmental "green" issues is considered at all levels.

Corporate green marketing and branding is taken into account and revenue-forecasting analysis is carried out to determine "green costs" versus additional green revenue.

Process 3.5 Energy Risk Analysis incorporates the business energy risk profile from the business questionnaire in process 1. This section is broken down into: Analysis of corporate energy goals and the setting of business risk parameters.

Analysis of risk in energy prices and the amount of energy forecast to be used.

Analysis of Operational, Market, Credit risk. Company Energy VaR (Value at Risk) can be put in for the business if required.

Appropriate energy trading (purchasing) mandate energy corporate governance policies are agreed with the business.

Process 3.6 Business Energy Portfolio Strategy is the last thing determined in "the Analysis section. This consists of: Merging of all analysis (Process 1, 2 and 3) to determine business energy position and strategy by state, country, region and globally. This then determines the business overall energy strategy and position for the start of process 4.

Process 4 Portfolio Revenue and Energy Optimisation The analysis from process 3 is used to arrive at plant, state, national and regional energy portfolios. State, Country, Regional Portfolios are then rolled up into a single global company energy portfolio if required.

A portfolio consists of energy price, load usage contracts and includes operational processes such as curtailability, site generation, and any additional secondary market contract arrangements.

Scenario finalisation and portfolio optimisation is carried out. The business's portfolios are split into defined segments and brought back together as the total business portfolio and the business's overall energy strategy is determined in conjunction with chosen scenarios. Process 4 is broken down into: Business energy prices offers or structured deals are optimises for each state, country regional and globally within given business energy risk parameters and business energy strategy.

Business operational requirements and other secondary deals are considered and structured into purchasing arrangements i.e. looking at when businesses use the (most least) energy and curtailment options.

Portfolio and contract duration (length of time) based on price forecasts and risk parameters is considered when deciding on contract terms and price, pool price exposure or other opportunities i.e. new generation coming on line such as Callide C. An example of duration risk is similar to when you take out a $200,000 mortgage and you not sure what the interest rate is going to be in 3 years time. So you would split the mortgage into 1, 3 and 5 year interest rates so it is not all maturing on the same day, giving flexibility and reducing interest rate risk.

Risk parameters and strategies are set for each portfolio type and level.

Potential counterparties with which to contract are evaluated i.e. counterparty default risk and strategic alignment.

Energy contract negotiations are started with various counterparties to defined contract specifics.

Process 5 Portfolio Performance and Set-up The analysis and optimisation carried out in process 3 and 4, is used to finalise negotiations of energy contracts with suppliers in accordance with business energy purchasing strategies and the business requirements for pricing and load flexibility.

Global, regional and country treasury and accounting issues are considered e.g. tax, foreign exchange hedging, borrowing costs, etc. Portfolio performance and set-up is broken down into: Business's energy and green portfolios and strategies are set up and finalised by plant, state, nationally, regionally and globally.

Energy contract negotiations with counterparties are finalised.

Business's energy portfolio trading purchasing policies and reporting are finalised. The policies provide the Energy Manager and Executives with the rules governing the purchase and sale of energy for the business.

Treasury and accounting issues i.e. looks at hedging foreign exchange risks if appropriate e.g. a global company can manage its energy purchases back to it parent company currency of choice i.e.

U.S. dollars. (Not all businesses need these stages size) Process 6 Benchmarking and Fees is broken down into: Energy Portfolio Manager agrees Internal and External benchmarks for the business's energy portfolio performance measures and payments. Benchmarks are tracked and monitored.

The Energy Portfolio Manager agrees business's portfolio fees, based on portfolio benchmarks.

The Energy Portfolio Manager agrees business's energy reports for the EPMS. The Portfolio Manager reports back to the business on a quarterly basis (or an agreed basis).

Energy portfolios are reviewed on an agreed basis where strategy, market direction, operations and energy cost drivers, etc are considered, the review is then feed back into policies and trading strategies.

Claims (4)

1. This is the first Energy Portfolio Management System (EPMS) that combines business energy operational requirements, energy trading skills, processes, and energy analysis into a single methodology for Businesses to enable them to evaluate their energy purchasing from an operation and trading perspective. EPMS provides:- large energy using business's with a specialised system, process, methodology and knowledge, which will enable the business to make strategic energy purchasing decisions. formalises business energy purchasing processes to determine load, price, risk, generation, curtailability, strategy, market unique parameters other inputs and constraints into business energy pricing and analysis, negotiations and benchmarking sections of the EPMS (Figure 1). Revenue forecasting and scenario analysis of business energy purchasing options aggregated at national or global operation level. Each business's unique energy purchasing needs in combination with total business needs i.e. The extra cost of green energy versus additional revenue received from customers for green product or curtailability at their own cost of production. A mechanism to determine energy risk adjusted prices and associated load for optimised durated business energy portfolio and global portfolio uniquely tailored to each customers risk profile. Outputs for finalising counterparty negotiations for business energy purchasing requirements. Structured methodology and system for determining optimised energy prices (electricity, gas, coal, petroleum), Business Energy Risk Profile BERP(c) and Business Energy Portfolio Strategy BEPS(c), for Business Energy Portfolio Management BEPM(c) by geographic location. The business with a mechanism to evaluate and buy energy from a number of sources best suited to their energy requirements. The ability for the business to assess and forecast green requirements e.g. Carbon, Green House Gas Trading and tie this into Corporate sustainability and environmental marketing.

2. EPMS allows energy contract management on a continuous centralised basis across sites, states, countries, and globally. EPMS centralisation means the business: Does not need to duplicate human and business resources, time and systems on the ground for each site, state, country, region, etc. Does not need to re negotiate every individual business site and state energy contract as they expire. Allows energy portfolio optimisation across countries or regions globally. Optimises and centralises all the business energy information to one location. Can standardised energy contracts terms and conditions on a global basis for the business. Makes it easier for international swaps and strategic alliances.

3. Business energy portfolios which are continually monitored and adjusted according to market and business operational changes, governed by the business's energy purchasing mandate. Monitoring and adjustment of the business energy portfolio allows business to take advantage of market movements and changing business requirements to reduce energy market and operational risks and costs to the business.

4. EPM (Energy Portfolio Manager) fees can be on a performance or fixed fee basis as opposed to a business paying consultants and retailers upfront fees on fixed term, fixed price contracts in accordance with Process 6 i.e. EPM fees can be tied to savings that the EPM makes the business compared to a benchmark. Although the present invention has been described in terms of various embodiments, it is not intended that the invention be limited to these embodiments. Modification within the spirit of the invention will be apparent to those skilled in the art of energy purchasing and energy trading operations. 1 Electricity (energy) covers Gas, Green and Petroleum Products 1