In light of the current global energy crisis characterised by rising fuel prices and geopolitical tensions, support for the energy sector – especially in the clean energy space – is critical.
It is a particularly interesting time to assess the evolving landscape of energy investments and the importance of advancing renewable energy technologies to meet net-zero targets in tandem with cutting-edge analytics. To discuss all this, TFG’s Deepesh Patel was joined by David Leevan, CEO, cQuant, at Commodity Trading Week Europe 2024.
cQuant’s support for the energy sector during the current global energy crisis
In the current global energy crisis, characterised by rising fuel prices and geopolitical tensions, widespread volatility reemphasises the importance of firms such as cQuant.
Energy markets have become more complex over time. Energy analytics have to deal with far more volatility in contemporary periods. Compared to 20 or 30 years ago, where coal-fired power plants simply ran flat out, the advent of renewables, battery storages, and many new technologies coming online, has resulted in far more uncertainty in energy portfolios.
Leevan said, “There is a whole swath of complexity in the energy industry…what cQuant does is provide the tools for companies to forecast value and uncertainty in value in energy markets – energy portfolios – and help them answer the questions that those senior management teams have for their markets and for their portfolios.”
cQuant’s view of the evolving landscape of energy investments
With significant investments in clean energy, particularly solar and wind, outpacing fossil fuels in recent years, it is important to develop accurate views on the evolving landscape of energy investments.
Globally, there is an increase in energy demand fuelled by several factors. One novel but significant aspect is the massive projected growth in energy demand resulting from the increasing prevalence of AI usage.
Leevan said, “We are going into an environment that some people are calling the golden age of energy where new technologies are going to be funded, whether they be hydrogen, ammonia, long-duration storage, or much more solar and wind coming onto the grid.” Particularly as this wind and solar penetration increases, there will be more volatility and uncertainty regarding energy prices and evolving energy price shapes.
Leevan said, “The ability to model and forecast that uncertainty and then optimise your decision-making around what to do about that is the role we [cQuant] play. And we think it is an essential role in the energy market.”
Despite this vast uncertainty driven by seismic changes in the energy market, opportunities abound for both energy producers and traders in the renewables space and in the context of the net-zero transition.
Leevan said, “You talk to any energy trader, and they typically like volatility and they like movement. Because they can play those markets and make money doing that. It presents lots of opportunities for different people and different companies, depending on where you are in that energy life cycle.”
Usage of different systems in an integrated manner
Currently, energy traders and producers have an array of technologies available and are using multiple systems. It is important to be able to integrate these in order to formulate a single view in real-time and make the most accurate decisions.
Leevan said, “I do not think that, in the short term, we are going to replace humans making those decisions. But the markets are more complex. And so, the humans that are making those decisions need better tools and better information upon which to intelligently decide how to proceed in the energy markets.”
In order to take advantage of the new technologies, companies must be adaptable. Using multiple tools instead of just one is a way to utilise this opportunity.
Leevan noted, “You have ETRMs [Energy Trade and Risk Management systems], you have short-term analytics, you have fundamental analytics solutions, you have got quants that you are employing, and you have quantitative tools like ours [cQuant’s] that you are also using to help those quants make better decisions faster.”
Realistically, there are lots of ways to invest in infrastructure to help stay on top of the changing technologies. Whether it is in-house, or purchasing a third-party solution, the important thing is to prepare for the changes.
How to thrive in a volatile and transitioning energy market
Given all these operational changes, quants face challenging operating conditions. To thrive, an essential element of forecasting value and uncertainty is to use simulation-based analytics, particularly Monte Carlo simulations. Additionally, quants must use fundamental analysis which is bottom-up, market design analysis. Leevan said, “I think the smart companies are using both…what we notice our clients doing is they run thousands of simulations on the entire portfolio, and then they run scenarios on top of those simulations.”
Finding a way to optimise future resiliency in portfolios is key, with resiliency essentially being the process of finding a way to optimise between the current environment and some point in the future. It is essential to make good portfolio decisions and create optimal hedging strategies in order to be best positioned to thrive in an uncertain world.
