AleaSoft just turned 21, and witnessed the history of the Spanish electricity market almost since its beginning. How did Antonio Delgado Rigal survive -how did AleaSoft survive- this evolution?
It was 21 years of hard work. We have seen many changes in the Spanish electricity market. Throughout this period we had the privilege of working with the most important companies both in Spain and in the rest of Europe.
To think that in the first years of the market almost all the electricity demand was satisfied with coal and fuel energy production, except for the hydraulic and nuclear energy production, is incredible. There was much volatility in prices and a lot of electricity production emitting polluting gases.
As the combined cycle gas turbines, the wind energy production and the solar energy production were incorporated, the volatility of the prices decreased and the electricity production in general became less polluting until today that it is no longer produced with fuel and not even with coal.
As new agents entered, the forecasting needs increased, such as forecasting of wind, solar thermal, photovoltaic energy production and of long‑term prices for the investments in renewable energy.
At the moment we have about 400 models in operation, mainly related to the European electricity markets, to carry out prices, demand and renewable energy production forecasting.
The companies in the energy sector, in addition to forecasting, need reports on the different markets in any country. Reports that analyze the past, the present and the future, which are useful for knowing a certain situation and allow making decisions. At AleaSoft in recent years, in addition to being a forecasting models laboratory, we became a company that generates information and reports.
All these years we lived through the changes that occurred in the Spanish electricity market and in the needs of the companies in the sector.
Which type of clients use the AleaSoft's products and services?
We work with all types of companies related to the energy sector that generally need forecasting: utilities, retailers, distributors, electricity and gas systems operators, large energy consumers, traders, power generators, promoters of renewable energy parks, investment funds and banks. This last group, related to the development of the renewable energies, had a growth in our client portfolio in recent years due to the need to have a long‑term vision of the electricity market future to undertake million‑euro investments.
The use that these companies make of our forecasting is diverse. For example, taking into account the expected market prices, they adapt the energy purchase and sale offers to maximize their profits.
The traders use our probabilistic forecasting as a reference to buy and sell in all horizons.
The large consumers and the electro‑intensive companies need mid and long‑term forecasting to close products in the futures markets or through PPAs, defining strategies that allow them to reduce the risks of price increases and take advantage of the opportunities of the decreases.
The long‑term forecasting is a reference for the companies seeking to finance their renewable energy projects, for example through a PPA or in the market.
Both buyers and sellers use our forecasting as an input in the risk management and hedging.
Some of these companies carry out the production and investment planning based on our forecasts, and the consumers use them to define a strategy for optimizing the industrial production that allows them to reduce costs.
At AleaSoft we work with the large companies in Europe and also with medium and small companies that require short, mid and long‑term energy forecasting.
In recent years, clients that are not direct players in the energy sector increased, such as law firms, consultancies, business associations, research centers, universities and public bodies.
As we said before, in addition to the forecasting in the energy sector, we are satisfying a need for information, studies and reports that are necessary for companies in the sector or indirectly related.
As example of these reports, we can mention the analysis of the impact on the market prices of the 7% tax, of the prospects for the recovery from the crisis caused by the COVID‑19 pandemic, on the PPAs, the renewable energy auctions, the CO2 prices, the photovoltaic energy, the international interconnections, the price cannibalisation, the storage, the hydrogen, the self‑consumption, the future scenarios, the NECP, the main European electricity markets, among many other topics of interest for the sector.
We also carry out expert reports for breaches of contracts where we give our external opinion as experts in the energy market. These expert reports are necessary in lawsuits and arbitrations.
The AleaSoft models combine several methodologies, such as the Artificial Intelligence, the statistics, Box¬ Jenkins, among others. Which advantages does the use of these models offer? How have they worked during the coronavirus crisis?
At AleaSoft we created a model and a methodology, applied to the energy sector, which brings together parts of other models and methodologies used in the last 40 years in the main universities, large companies and public organizations that make forecasts worldwide. Combining the most advanced of different methodologies was essential. One of the main parts of our model is the recurrent neural networks that belong to the field of the Machine Learning, an area of study within the Artificial Intelligence, which is in fashion. The classical statistics and Box Jenkins components are also essential in a scientific and coherent model of future forecasting. We also take into account all the technologies involved in the market and how the hydrothermal gap is being completed depending on the demand of the system, the incorporation of renewable energies, the nuclear shutdowns, the hydraulic management and the costs of the fuels and the CO2.
The Artificial Intelligence requires a lot of data. Having a history of 21 years allows us to have all the historical information of all European markets. Our models have access to all hour‑by‑hour data of demand, of production for each technology, to all meteorological data, to all energy purchase and sale offers in each market for each hour in all the history. All this information allows the Artificial Intelligence to obtain knowledge and make inferences of the future.
With the coronavirus crisis that began in March, the models have been working correctly as they are learning and adjusting to the reality. From that moment on, the future scenarios change, which have to be adjusted as the forecasts of the economic future, of the introduction of new renewable energies, of future prices of fuels and CO2 and in general of all the variables on which the price depends change.
The pandemic changed all our lives in one way or another. Is AleaSoft teleworking? How has the experience been?
We've been teleworking since mid‑March and everything has been working well overall. After so many months working from home, we miss the personal contact with our inside and outside colleagues. For the whole country it has been a hard period. We stand in solidarity with the families that lost some member, those that are experiencing economic hardship due to the unemployment and also with the companies that had to close or will close.
In the field of the business relations to explain the advantages of the forecasting services there was a great change. On the one hand, the personal contact is lost, which is essential in the field of the business, but on the other hand, with video calls it is possible to contact many more people every week in different cities around the world. For example, in some days we could make eight or nine video calls.
The distance work, organization, learning, entertainment and events are here to stay and when the pandemic passes we will have taken a qualitative leap.
Not everything with the pandemic has been negative. Since it began, AleaSoft has carried out various initiatives to inform about the evolution of the energy markets in this context, including the webinars. How has the experience been? Which are the topics that interest the most?
Our objective as a company is offering information on the evolution of the energy markets: history, present, perspectives and vision of the future to make decisions and invest. Being able to disseminate this information, knowledge and market intelligence by various means is essential. It is also important to be able to reach all those interested in the energy sector, from the large companies, investment funds and banks to the small investors, those who have self‑consumption or are university students.
Every week we generate between three and six publications. We keep our website updated in five languages, as well as 12 energy observatories of the main European electricity and gas markets. Every four or five weeks we organize a webinar that we carry out the same day in English and Spanish.
The organization of the webinars has been a very positive experience. There is increasing interest, especially due to the uncertainty generated by the coronavirus. This uncertainty makes a vision of the future necessary in the energy sector. Each new webinar surpasses the previous one in interest and audience, both at the time of the broadcast and later by requesting the recording.
The National Energy and Climate Plan (NECP) and the financing of billions of Euros in renewable energy is a topic of great interest today. The topic of the PPAs also arouses a lot of interest, in developers, investors, banks and large consumers.
Another topic of interest is the evolution of the energy markets with the uncertainty of the global crisis, so it is important to know the vision of the future of our experts and of the invited experts.
AleaSoft counted on its webinars with the participation of speakers from very important companies in the Spanish renewable energy sector, such as Engie and Deloitte, who gave their views mainly on Project Finance. Which are the most important conclusions?
Financing projects for renewable energy facilities are profitable despite the crisis and the installation of new photovoltaic and wind energy generation capacities planned by the NECP. The banks and the investment funds of Spain and more and more from abroad continue to be increasingly active, making the money flow to promoters and engineering companies for the development of renewable energy facilities.
The solar resource that we have in Spain is a gold mine and it must be exploited. We will go from being net importers of electricity and energy to being exporters.
In general there is optimism in the future. The renewable energy sector is fortunate compared to other sectors affected by the global crisis.
The Government approved only a few weeks ago the design of the new renewable energy auctions and it is expected that in the next few days the first call will be launched. Which is the AleaSoft's position in this regard? Auctions yes or no?
The auctions must be organized with great care, to develop PV in regions with special conditions such as the islands or depressed areas. The PV production does not need support as it is the most profitable technology. If the auctions are poorly organised and the market prices signal is altered, the developers and investors will lose the confidence in the Spanish electricity market.
From a strategic point of view, at AleaSoft we believe that any incentive has to be focused on increasing the consumption of green energy, in the transport and in the industry. Creating a national system to produce, distribute, consume and export green hydrogen would be a great achievement.
If in 20 or 30 years we want to achieve minimum emissions of polluting gases, investments of billions of Euros are needed on the continent and Spain has the best solar resource. It is necessary to have a very clear vision of the future to plan well from the present.
There is a lot of talk lately about green hydrogen. Which role will it play in the energy transition of Europe, in general, and of Spain, in particular?
The green hydrogen together with the photovoltaic energy production represents the future of the clean and renewable energy worldwide.
In 20, 30 years, the green hydrogen will replace the polluting fossil fuels in the transportation, the industry and in other sectors. For this to happen, billions in investments are needed on the continent.
The future development of the generation with wind and solar energy must be aimed at guaranteeing the electricity supply every hour of the day by storing energy with batteries and green hydrogen. The renewable energy generation of Spain must have the capacity to generate all the green hydrogen necessary in the country and the capacity to export it to other countries.
Which role will the solar thermal technology, which always boasts that it is the only "manageable" renewable energy, play in the future of the national electricity system?
As always, in the electricity generation market, the most efficient and profitable technologies will make their way into the future national electricity system.
The solar thermal energy production, especially the CSTE (concentrated solar thermal energy) is a technology that is advancing and developing worldwide. It stores a large amount of heat which allows the hybridization with production processes and hydrogen production. It can also be combined with photovoltaic energy and batteries to improve the efficiency and the manageability, which affects the profitability of the project.
What about the storage? Which role will it play?
The storage is essential in any new renewable energy investment to give stability to the system and to achieve a better profitability of the renewable energy production. The investments in batteries have to take into account a long‑term market prices forecasting, because if the price drops or the hourly profile flattens, the battery stops making sense.
The vision we have at AleaSoft is focused on three axes: the local, the peninsular and the European.
In the first case, the local, one or more renewable energy facilities, preferably combining PV and wind energy, create a local grid that needs batteries to guarantee the supply to its users, nearby consumers, at any time of the day. This local grid exports the excess to the national grid and buys when needed.
Second case, peninsular, for large hybrid renewable energy facilities. In this case we recommend the use of batteries, but mainly hydrogen production to store and export to the gas grid.
Third case, European, for very large hybrid renewable energy facilities. Besides generators of electricity, they are large factories to generate hydrogen. Located near gas nodes to export hydrogen into or out of the continent by pipelines or ship.
In the case of Spain, we do not see the need for large batteries to guarantee the supply at the national electricity grid level.
There is a nuclear blackout calendar in Spain. However, the expected increase in renewable energy production raises fears among some actors that the security of supply could be affected. Should the life of the nuclear power plants be extended to minimize this risk?
As long as they are profitable and safe, they must remain in operation. If in the future the electricity market price falls below a threshold, the nuclear power plants will be closed. It must be understood that the electricity market self‑regulates, that is, the most profitable technologies prevails and the least profitable leaves. The regulatory bodies must guarantee, in the case of the nuclear energy, the safety. The processes of opening and closing generation plants will be business decisions, made on the basis of the profitability.
Which are the AleaSoft’s perspectives about the CO2 prices?
The CO2 emission rights market has been a fundamental vector in the fight against the climate change. Our vision from AleaSoft is that the prices of these emission rights will continue to rise moderately.
The winds of change are blowing in the Spanish and European electricity markets. What can AleaSoft contribute in this new stage?
The billion‑Euro investments in the renewable energy sector require a very reliable vision of the future and need to manage the risks properly. The long‑term electricity market prices signals are the first link in this chain of financial projects.
The quantitative aspect and the price in the future are important and also how the electricity sector will be and in general the energy sector in 10, 20 and 30 years. What are the scenarios for the entry of renewable energies, nuclear shutdowns, and hydraulic energy production management. At AleaSoft we provide this vision of the future that will allow, in addition to investing with confidence in renewable energies, planning the necessary investments for the decarbonization of the transport, the industry and the rest of the sectors.
What differentiates AleaSoft's long term prices curves forecasting?
Our long‑term prices curve forecasts are based on the combination of a set of scientific methods. They are highly coherent as the forecasts indicate equilibrium points in the market in the long term. Another difference is the AleaSoft's experience in the Spanish electricity market, more than 20 years working with the most important companies and knowing every detail of the market price formation. Every day, for 20 years, a team of our company with extensive experience in the market and in the models, reviews the European markets prices and the behaviour or changes of the most important variables.
We make 30‑year forecasting with an hourly breakdown. This hourly breakdown is essential to accurately calculate the price captured by each technology: photovoltaic, solar thermal, wind, hydraulic, pumping, batteries, hybrid systems and any other in each facility. In addition, the hourly breakdown of the average price in 30 years allows structuring financial products, for example related to PPA base load and solar curve, and thus managing the risk better.
Another characteristic that differentiates us from other long-term reports is that our 30‑year electricity market prices forecasts have annual confidence bands with a probabilistic metric. For example P15, P50 and P85. These probabilities are essential when carrying out the valuation of the renewable energy portfolio and the risk of having problems with long‑term investments since the probability of the expected returns on a renewable energy facility can be calculated.
Well, and finally, what are AleaSoft's prospects for the next 20 years?
The next 20 years pose many exciting challenges for the European electricity sector in general and the Spanish in particular. During these years, the renewable energies will experience great growth, and technologies such as the hydrogen will make a great leap for, as a whole, achieving the decarbonisation of the energy sector. Many regions, mainly those in the south, will experience great development thanks to the photovoltaic energy, and Spain may become an exporter of electricity and green hydrogen. If in 2019 the renewable energies contributed more than 1% of Spanish GDP, in the future this contribution will continue to grow and in ten years the GDP will have a significant component close to 10% in renewable energy generation, both of electricity and green hydrogen.
At AleaSoft we aim to help the companies in the sector throughout this process, becoming European leaders in forecasting issues in the energy markets and generators of information and reports.
Source: AleaSoft Energy Forecasting