Energy Trading Week 2023 – What we learned

The Gen10 team recently sponsored the industry-leading Energy Trading Week conference series where we caught up with contacts in the energy and commodities space and attended several panel sessions across the 8 conference streams. With so many insightful presentations taking place simultaneously, we couldn’t catch everything that was shared across the two days, but below we summarise some of the key takeaways and highlights from the sessions we attended. We have split these into 4 broad themes:

• Pricing and financing
• The energy transition and decarbonisation
• Data and automation
• Collaboration and standardisation

Pricing and financing

The price of energy and energy commodities is closely linked to many of the topics below. The energy transition is still ongoing and this is predicted to drive volatility, as there are barriers and bottlenecks such as storage infrastructure and the transportation sector to overcome.

Another factor influencing pricing that we are probably all familiar with is geopolitical shocks. As the war in Ukraine continues, analysts are also looking ahead to other geopolitical threats, and China was highlighted as a particular risk, in terms of both tensions with Taiwan and due to concerns about its economic slowdown.

And the increased prices of energy commodities, combined with high interest rates globally, mean that accessing credit has become more difficult and more expensive. Competitive financing is therefore key – and often relies on data management to prove your credibility.

Another interesting comment made specifically on the steel sector, but relevant more broadly, is that people are beginning to pay a premium for low-carbon products. However, pricing should be promoting the behaviours we want to encourage, which would mean paying more for the more polluting product. This could only be achieved through legislation, which we are slowly beginning to see.

The energy transition and decarbonisation

Panellists agreed that the market is essential for a cost-effective energy transition. And that the high prices in recent years show that the market is working, as they reduced demand and increased energy efficiency.

However, energy doesn’t operate in an entirely free market, with governments often acting as monopoly buyers of green projects and subsidising green behaviours. This can occasionally impede investment, as investors are currently waiting to see what new policies will be announced before committing. And energy markets can also be affected by political ideology, such as the example of Germany shutting down its nuclear power plants despite its drive to transition away from fossil fuels.

Government involvement also means that the energy transition challenge can be broken down into smaller stepping stones that can be more achievable than a single large target, as governments tend to operate according to political cycles.

We’re also seeing increasing legislation supporting the energy transition. To highlight just one piece of legislation, the EU Carbon Border Adjustment Mechanism (EU CBAM) transition period has now started. Importers of certain materials and energy will need to report on these products’ emissions when they are imported into the EU, and from 2027 will need to surrender CBAM certificates to offset any emissions over the cap. The first reports are due at the end of January 2024 and cover the current quarter, October-December 2023.

Data and automation

Multiple sessions highlighted the importance of accessing relevant, high-quality data. In one session, Richard Williamson, Gen10 CEO, explained how benchmarks actually penalise the best performers. This is because they assume an average, so if an organisation is outperforming but don’t have the data to prove it, by using the average their efforts are assumed to be less than the actual situation.

Data (and automation) is also needed to help de-risk organisations and improve efficiency. Indeed, one audience poll reported that automation is the most common new capability back offices are being asked to support.

Automation was also highlighted as a way to help the back office become more proactive and focus on the activities that add value, for example by only needing to look at what hasn’t automatically reconciled rather than manually reconciling all stock. And readily-available data also helps with proactivity as it means that the team can find issues as soon as they arise.

This back-office automation should drive improvements across the entire business and help to break down the artificial silos that can arise between front, middle and back offices. Creating collaboration across the business provides data to everyone who needs it and allows experts to respond as needed much faster.

Collaboration and standardisation

One comment that particularly stood out to us was that “transparency is like GCSE maths – you need to show your working”. This follows on from discussions in the same panel around how it is difficult to achieve full traceability and completely accurate carbon estimates. It was highlighted that the important things are to keep working towards these goals and to collaborate with others.

There are many ongoing projects promoting industry collaboration to solve a range of challenges that affect us all, but we particularly focused on initiatives to standardise carbon accounting. One industry body working on this challenge, Energy LEAP, spoke about their efforts in the carbon space. They say they are getting closer to a data standard but highlight that standardising tracking and measurement is a long journey.

However, if we wait until somebody else has set clear goal posts we will have waited for too long. We need to collaborate to make progress now. And since we can roughly see the goal posts, we may as well begin kicking in the right direction. The panel repeated the key message several times that doing something is better than doing nothing – particularly if you are being transparent and collaborating with others. So don’t be concerned about perfection paralysis – take the step in the right direction now, with support from others in our industry to get there.

And Richard rounded out the session by pointing out that there are many steps you can take towards standardisation, so it’s important to have software that supports you at every stage. Wherever you are in your standardisation journey, our Carbon and Commodity Management Systems can help. Whether you are looking to improve your data management and automation, standardise internal processes, or share data and collaborate across supply chains, we have a range of flexible solutions that fit to your current processes and evolve alongside your business growth.