Energy & Commodities

How Next-generation Operating Models Will Affect Future Trading in the Energy Market

Energy transition and volatility are making life more complex

War in Europe and extreme weather events in Texas have sent shockwaves across trading markets. Is this volatility a one-off incident based on the constellation of these unique, unforeseen events? Or will volatility become a new normal, magnified by energy transition and the push for carbon neutrality by 2050?

This energy transition will be different and far more complex compared to previous energy shifts. The 19th century became the “century of coal” as energy consumption transitioned away from wood. By the next century, oil had surpassed coal as the world’s primary energy source. The coming energy transition differs from past ones in a critical way: The world will not have a single favored energy source in the foreseeable future. Instead, it will depend on various interconnected energy sources (Figure 1).

The growth of hydrogen and batteries will add complexity to composite value chains and further fragment secondary energy sources. According to current projections, hydrogen will account for 11 percent of global natural gas consumption and 12 percent of electricity consumption by 2030. Similarly, battery storage will amount to around eight percent of the total renewable power capacity projected to be installed by 2030, ensuring minimum intermittency, maximum reliability and new arbitrage opportunities.

Customers will have more choice in how they power their lives, leading to more competition across commodities. Volatility could remain as switching drives swings in demand (Figure 2).

Organizations should revamp their strategies to remain trade energy leaders

To remain leaders and spur growth, trading organizations are finding ways to adapt their strategies across existing assets and new value pools in each of the core sectors:

Avoid silos and redundancies by advancing operating models

Though trading organizations should continuously search for new sources of growth, they should also develop operating models to activate new value pools. Traders could look to the three-building block operating model to guide commercial positions in the future (Figure 3). For instance, over the last 15 years, trading organizations shifted from relying on Enterprise Resource Planning to Energy Trading Risk Management (ETRM) to manage their positions since accounting-focused Enterprise Resource Planners were not equipped to handle end-of-day position reporting. Today, the need for real-time position and risk management drives organizations to adopt a modular solution architecture that is beyond the capabilities of existing ETRMs. They trade a lack of capabilities inside the ETRM for new capabilities outside it.

Transform energy trading strategy with a product mindset, agile delivery and modern engineering

Organizations will remain leaders and spur growth in the coming decades by transforming their trading system architecture and activating our best-in-class operating model. These three steps are essential to a trading transformation that delivers short- and long-term value:

Publicis Sapient is here to help organizations navigate their journey

To discuss how to address the emerging opportunities for trading organizations and the detailed findings behind this perspective, please contact: