Energy and commodity markets have grown increasingly complex when it comes to trading, risk management, settlement and regulatory reporting. Trying to keep up with these developments, the monolith solutions that are supposed to manage all those activities in a single system have become nearly unmanageable, inflexible, and very costly to maintain. Since the financial crisis 10 years ago, market participants are paid lip service for wanting less costly solutions with proven functionality that is implemented faster with reasonable flexibility as their business changes. Today, they experience the costly consequences of their expensive monolith system choices that deliver many functions averagely at best. As a result, there is growing recognition that solutions work better if they are kept simple rather than made complicated. Best-of-Breed is now considered a more suitable fit to support the complexity of C/ETRM software system environments, both for functional capabilities as well as to lower the total cost of ownership. Here are a few ideas how to Improve and Simplify your C/ETRM Environment!
Legacy C/ETRM systems that were never designed for real-time operations, or for physical transactions, where settlement and accounting was an afterthought, or missed the data structure and processing requirements for regulatory reporting, are bursting at the seams after being built-out with multi-million dollar investments. Similarly, in-house developed systems are challenged by constant market changes that requires firms to redo their work – a factor that has the potential to exponentially raise cost of operations.
Today, there is a quiet revolution in the C/ETRM market where specialization, modularity, or solutions with reduced functionality are meeting the needs of market participants looking to reduce the cost of maintenance, upgrade cycles and over-customized functionality.
A C/ETRM System designed from the BACK to the Front
With prices under pressure, competition increasing, and extensive compliance reporting put in place, energy and commodity companies are looking to reduce cost of trading, increase efficiencies, improve business analysis, and comply with regulatory reporting. While many C/ETRM offerings are called next-generation, few were conceived with the back-office as a starting point. When considering the needs of functions like complex contract settlement, portfolio reporting, energy certificate tracking, and compliance management then it is inevitable that the system’s technology must offer the latest in data structure and processing capabilities. Therefore, a C/ETRM system that is developed from the back to the front will offer superior output capabilities and is truly capable of evolving with the business operations.
For the large and complex organizations, it might be unrealistic or maybe unnecessary to replace an entire C/ETRM. A budget-friendlier approach is where the vendor can deliver a modular application that can be easily integrated and add value in selected functional areas that require improvement.
For example, in the energy trading industry, companies are stuck with a business process problem called complex or non-standard contract settlement. A ‘built-for-purpose’ settlement module with strong configurability of contract rules and billing determinants will streamline the contract-to-bill process for both standard and complex contracts. Automation with workflow management and integration with General Ledger systems expands the team’s processing capability without adding resources. With rule-based automation in place, Robotic Process Automation (RPA) can be applied to further improve efficiency and speed by reducing or eliminating repetitive work processes.
Similarly, as the renewable energy market grows, so will the volume of Renewable Energy Certificates, such as Guarantee of Origins. As a result, it will outgrow current usage of spreadsheet-based systems, relying on the portal with access to the registry of the certification entity or the limitations of functionality included in ETRM systems. Instead, investing in a module designed to show certificate inventories to match certificate trades, or match physical power deals with a desired set of certificates, or calculate positions and match this against obligations certificates inventories, delivers the automation to reduce the complexity and improve operations whether you are Trader, Energy Retailer, or Generator.
Horses for Courses
For companies that do not require customized enterprise level solutions, a C/ETRM Software-as-a-Service with configurable standard functions delivered in the cloud, will better meets their needs. This way, non-enterprise level customers can leverage selected Tier-1 functionality for basic deal capture, position management, and standard reporting for mark-to-market and P&L. With a self-serve, rapid deploying environment, a C/ETRM SaaS solution offers a compelling value proposition to growing businesses who need a modern, agile business solution that reduces their complexity and cost, while allowing them to scale rapidly for long term innovation and growth.
The quest for the holy grail – a single-vendor solution with all-encompassing functionality – has led to expensive implementations and complex environments that are too expensive to maintain. In addition, changed markets are now calling for improved functions in the areas of accounting, structured contracts, regulatory reporting, and real-time operations. The market participants that are able to lower cost, manage risk, and have the ability to differentiate in competitive markets will be the successful ones or even the survivors. They realize there is a cost associated to workarounds to compensate for missing functionality as well as for the grown complexity. The good news is there are options: To cover the functional C/ETRM priorities the market is calling for in a front-to-back C/ETRM system, look for one that is designed from the BACK to the Front. To cover selected functionality areas for which existing software functionality for which existing software functionality for which existing software functionality for which existing software functionality is weak in your current environment, look for proven best-of-breed (or best in class) offerings for each such functional area. And if you are drowning in a system that’s just too big for your operations, look at a C/ETRM Software-as-a-Service with standard configurable tools that are implemented in weeks. That’s how you can improve and simplify your C/ETRM environment.