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In PowerUp, we have
introduced a flexible and scalable architecture
with unprecedented performance. As the energy industry
continues to change, the particulars of software
architecture will be critical
to successful implementation of enterprise solutions.
This is especially true in an environment where
continual adaptation is expected for a companies’
survival. |
As requirements change, new and
different applications are needed, or existing ones require
update. The flexible architecture of PowerUp will enable
our clients to replace older applications with faster
and timely application modules as business rules change.
For that reason, PowerUp will be able to maintain our
clients’ infrastructure investment and support their
business for many years into the future.
Motivation
Energy companies are increasingly focused on trading
around physical assets. It is therefore becoming impossible
to separate risk management and other financial decisions
from the physical realities of power generation and
delivery. Electric power generators, for example, have
complex payoff functions and subtle embedded optionalities.
These optionalities depend on physical characteristics
like fuel efficiencies, startup times, cycling times,
ramping limits, output constraints, maintenance requirements,
and outage rates. On the delivery side of the business,
a power contract exposes the seller to uncertain (and
often unlimited) volume on one side of the contract
with uncertain price on the other. The resultant risks
depend on factors beyond your control such as weather,
fuel prices, and customer behavior.
To avoid devastating losses in deregulated generation
or delivery markets, these non-financial factors must
be taken into account when buying, selling, hedging,
and managing energy assets. Unfortunately, there is
a lack of developed tools capable of effectively and
efficiently performing this kind of complicated analysis.
Approach
EnWorkz PowerUp™ is an advanced software platform
for analyzing the cash flows and operating states of
energy assets in multi-year, multi-scenario simulations.
PowerUp is unique in its ability to accurately account
for the physical constraints and complex economics of
generators and loads without requiring impractical amounts
of time and computing resources. As a result, PowerUp
can significantly improve the accuracy of risk assessments,
cash flow forecasts, valuation estimates, and resource
budgets.
The EnWorkz PowerUp™ software suite provides a
unified, portfolio-level solution for the management
of electric power generation, delivery, and hedging.
Most risk management systems attempt to model energy
portfolios using modified generic Wall Street financial
models, PowerUp is based on detailed physical asset
models that capture the complex payoff functions and
subtle embedded optionalities of assets such as generators
and loads. By combining these physical models with a
state-of-the-art resource allocation optimizer, PowerUp
can accurately solve complex portfolio optimization
and risk management problems that involve multiple asset
classes, multiple scenarios, operating flexibility,
and difficult coordination constraints. The benefits
for an energy company include:
o more predictable
earnings
o improved efficiency
o more transparent
risk management at the corporate level
Seamless integration
of physical and financial asset models
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In PowerUp, it is
easy to model portfolios consisting of both physical
and financial assets. For instance, a single portfolio
might contain generators, load-following contracts,
and call options. PowerUp analyzes the entire portfolio
and reports a variety of statistics about cash flows,
costs, and utilization rates.
PowerUp’s integration of physical and financial
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yield the added benefit of improving
the linkage between trading activities and operating decisions.
In many energy companies, there is a tension between the
trading and operations groups, because analysis performed
by each group tends to ignore objectives and constraints
of the other. PowerUp accounts for both simultaneously.
It will not pursue trading revenues without considering
the economic costs incurred by the generator. At the same
time, it will not “protect” a generator when
net profitability could be increased through more aggressive
action. Capabilities
of EnWorkz PowerUp
PowerUp is particularly targeted at the following activities:
o Coordinated resource scheduling under uncertainty,
encompassing unit commitment,
contract exercise, fuel transport, and curtailment.
o Physical risk and earnings assessment, including earnings-at-risk
metrics for generation assets,
and quantification of volumetric risk associated with
delivery obligations.
o Physical risk management via hedging of generation
and loads with bilateral contracts
and options.
o Valuation and pricing of individual assets like generators
and contracts, based on how
an asset actually responds to market conditions.
o Capital Adequacy and cash flow comparisons for the
entirety of your asset portfolio.
Resource scheduling
PowerUp includes advanced capabilities for coordinating
a portfolio of generation assets, bilateral contracts,
options, loads, and fuel contracts to maximize total
portfolio returns when prices or demand are uncertain,
and accounting for flexibility inherent in assets like
peaking generators and options. Examples of the kinds
of questions that PowerUp can answer:
What
is the most profitable unit commitment schedule for
my generators?
Which units to run / for how long / at what bids?
What is the optimal strategy for utilizing optioned
resources with minimum and maximum takes?
How should I coordinate fuel sources for my generators?
Risk and earnings assessment
PowerUp can estimate a portfolio’s earnings volatility,
loss probabilities, expected values, earnings at risk,
volumetric risk, and other risk measures – all
derived from a detailed physical model of asset behavior.
What
is the distribution of earnings that I can expect from
my generation and/or delivery portfolio during a particular
timeframe?
How much volume risk is associated with my delivery
contracts?
What is the probability of a loss?
How sensitive is my portfolio to changes in energy or
fuel prices?
What is the probability that I will have to curtail
load or purchase additional energy in the spot market?
Risk and earnings management
PowerUp can recommend hedges and adjustments to a portfolio
to improve the risk-return characteristics according
to the user’s risk preferences.
How
should I allocate my generation capacity to bilateral
contracts, and how much should I expose to the spot
market?
What kind of hedge do I need to keep volume risk within
target limits?
What hedging instruments should I add to my portfolio
to reduce the variability of returns?
Should I sell a call option or cap against some of my
generation capacity?
Valuation and pricing
PowerUp can analyze the incremental economic benefit
of an individual asset, supporting valuation and pricing
efforts. Because it uses a physical model of asset response
to the market environment, PowerUp can produce more
accurate valuations than is possible using simpler models
like those based on spark spreads.
What
is the range of ROI that I can expect from a new generator?
What cash flows can I expect from my load portfolio?
How should I price a load service contract?
What
are my capital adequacy requirements, and what adjustments
would improve them? Should I buy a distressed asset/sell
an older unit?
How EnWorkz PowerUp works
The core of the PowerUp suite is a state-of-the-art
optimization engine that allocates resources through
the use of simulated price signals. The optimizer maximizes
expected economic benefits over multiple time periods,
accounting for uncertainty in demand and price as well
as constraints and costs for such things as generator
operation, transmission capacity, fuel transportation,
and contracted resource availability.
This approach of simulating price
signals to allocate resources has a valid mathematical
basis called Lagrangian Relaxation. The Lagrangian approach
is commonly used to solve large-scale optimization problems,
and it amounts to
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solving for clearing
prices while balancing supply and demand for various
resources. Some of you may know that conventional
Lagrangian Relaxation formulations are unable to
handle uncertainty, normally optimize a single asset
class at once, and tend to have difficulty converging
to a final solution. The
PowerUp framework overcomes these limitations through
a number of innovative proprietary technologies. |
Essentially, we incorporate uncertainty
into price and demand forecasts, simultaneously optimizing
multiple asset classes with difficult coordination constraints,
and invoke effective heuristics for ensuring rapid solution
convergence. Moreover, PowerUp includes highly optimized
models for generators and other assets that are orders
of magnitude more efficient than conventional implementations
while retaining a very high degree of modeling accuracy.
PowerUp can handle a wide range
of constraint types and internal costs. Constraints
and costs can be:
o scalar (for instance,
generator maximum output levels)
o spatial (e.g.,
transmission line capacities or fuel transportation
costs)
o temporal (e.g.,
minimum uptime and downtime constraints on a generator,
or minimum and maximum
monthly takes for a gas swing contract.)
In PowerUp, assets represent sources of supply or demand,
including generators, loads, fuel contracts, bilateral
energy contracts, caps, and other physical or financial
objects. Each asset observes the price signals for resources,
and varies its own consumption and supply to maximize
profits.
If there is a desire to accelerate computation, PowerUp
is designed such that it can be run in a distributed
mode on multiple Intel-compatible PCs. Through the combination
of distributed computing and price-driven resource allocation,
PowerUp can solve portfolio optimization and risk management
problems that are beyond the practical limits of conventional
tools which have been based on Linear Programming, Mixed
Integer Programming, or conventional Lagrangian Relaxation.
Please note that due to its inherent internal speed
PowerUp may have no requirement beyond a normal desktop
computer, unless there is a need to run complex asset
optimization scenarios.
In addition to being computationally efficient, the
price-driven resource allocation method in PowerUp offers
another key advantage: Because assets and market clearing
are modeled as independent objects, PowerUp can be extended
with new asset behaviors without requiring changes to
the optimization engine.
Uniqueness of EnWorkz PowerUp
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Physical-level
model of assets By modeling the actual behavior
of assets instead of using models of simpler financial
assets, EnWorkz PowerUp increases the accuracy and
reliability of analysis. (For one EnWorkz client,
our physical generation model yielded a 75% reduction
in the variance of a generator valuation estimate,
compared to the result produced by a more traditional
spark-spread option model.) PowerUp is the |
first commercial portfolio management
product that incorporates detailed physical asset models.
Explicit modeling of price
uncertainty and asset flexibility
The scheduling and optimization methodology in EnWorkz
PowerUp explicitly accounts for the optionality that results
in flexible generation under uncertainty. It does so using
scenario trees, which avoids certain biases that can result
in other approaches. The ability to model uncertainty
and flexibility can have a significant impact on results.
Unit commitment schedulers
that model uncertainty can reduce fuel costs up to 5%
compared to schedulers that don’t. Portfolio-level
solutions First commercial
product to link unit commitment, delivery, and hedging
into a single portfolio optimization problem that allows
multiple asset classes and difficult constraints. Avoids
the sub-optimization that occurs when assets are managed
in silos.
Unified framework One
core optimization engine and asset model drives resource
scheduling, risk assessment, risk management, and valuation
of energy portfolios. Fewer systems to maintain, reduced
training burden, easier upkeep, less redundant modeling
work.
Leading-edge optimization
engine The EnWorkz PowerUp
engine is efficient and extensible, so it can tackle
large problems and grow with your business needs.
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