Market Strategy & Operating Model

The key elements of the commercial business model that we help design and implement include:

• Overall commercial and risk management governance structures including definition of the boundaries between commercial (front office) decision-making activities and control functions;
• Allocation of organisational (divisional) mandates across the value chain (between the commercial functions and upstream and downstream businesses);
• Design of the commercial division/trading function’s internal organisational structure; and
• Requirements to skills and staffing.

We assist organisations in devising trading strategies that hedge the market risk inherent in their physical assets (generation and customers) in a manner which is consistent with the organisation’s risk appetite.

This is often done in conjunction with the development of new bespoke market risk models with the capability to encompass the organisation’s entire commodity portfolio, including fuel and carbon exposures as well as power. Although necessarily reflecting the specific priorities of each organisation, the strategies we develop typically focus on the management of volumetric risk (e.g. generator forced outages, customer demand) as well as price risk.

We have assisted clients in setting up new trading functions in liberalising markets. Set up includes many aspects of commercial model design as well as ETRM service offerings, including defining the trading mandate, trading / hedging strategy, trading organisation design, risk governance, risk policies and controls, risk analytics and modelling, business process design, ETRM package and supporting IT implementation.

Design and implementation of market-based performance measurement and transfer pricing regimes for trading / portfolio management business units which:

• Reflect the overall organisational mandates across the value chain;
• Capture and pricing of embedded optionality and/or volumetric uncertainty;
• Incorporate appropriate incentives to the upstream and downstream businesses to provide timely and accurate information to support trading/portfolio management decisions (i.e. generation availability and reliability, and demand forecasts); and
• Design of book structures to facilitate measurement of performance of different trading desks / trading strategies, and to facilitate risk controls and limits on different parts of the portfolio.

Design of key commercial and risk management business processes with focus on:

• End-to-end process modelling;
• Capture of all interfaces with upstream (e.g. scheduling and planned maintenance) and down-stream division (e.g. demand forecasting) as well as corporate functions; and
• Clear linkage to systems and data.

Extensive experience of working with traders, risk managers and IT professionals to help define and implement ETRM vendor systems, as well as internal risk and valuation models. In particular, our senior staff have experience of assisting clients with:

• Defining clear and well thought through functional requirements to support subsequent system selections and/or in-house build;
• Selecting a new system vendor from initial screening to development and evaluation of proof of concept testing for shortlisted vendors;
• Managing the implementation of trading and risk management systems (e.g. OpenLink), as well as build/integration of bespoke models and/or systems; and
• Defining requirements to the wider surrounding enterprise architectures in terms of supporting processes, information and data management as well as reporting and business intelligence.