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AleaSoft, February 3, 2021. When planning a strategy for purchasing energy or estimating the return on the investment of a renewable energy project, it is very important to have a clear vision of the future of the long‑term market prices. This market prices forecasting is what will allow calculating whether the expected income makes the investment profitable or if the price of the PPA allows savings compared to the market. And as in any long‑term vision, only the time can say if it is right or wrong.

Understanding the electricity markets prices dynamics is difficult. In the generalist press, the markets are only news when their prices are high, due to the repercussion that this may have on the final price of the invoice of some individuals and companies. But the markets dictate prices for each of the 24 hours of the 365 days of the year.

Beyond the alarming headlines when the prices climb to highs, the underlying idea that needs to be conveyed is that markets operate around equilibrium prices and that a high prices episode will, in the long run, always be offset by one of low prices. To estimate the costs of the energy consumption or to estimate the income for the profitability of an electricity generation facility, it is always necessary to look at the long term.

The long‑term prices forecasting

It is around this principle of the equilibrium of the prices in the energy markets that the AleaSoft‘s forecasting models operate. The concept of market balance allows modelling the fluctuations caused by exogenous variables, such as the weather conditions or the gas and CO2 prices, and determining the time structure and the equilibrium point of the prices series. The projection of this equilibrium point into the future allows visualising the attractor around which the prices will fluctuate. Because the prices will continue to fluctuate, but, at the long term, the important thing is to know the average and the trend of the prices.

To illustrate the idea, below, there is a price forecasting for the Iberian electricity market MIBEL made in October 2010. It is possible to observe how the market prices oscillate around the equilibrium average price set by the AleaSoft‘s forecasting. External conditions such as rainy years, such as 2016 for example with a lot of hydroelectric energy production, or episodes of high gas prices, as in 2018, or extraordinary and unpredictable circumstances, such as the COVID‑19 in 2020, cause the electricity markets prices to vary, but these always return to the balance.

Long term price forescast of the MIBEL market made in October 2010.
Source: AleaSoft.

After the fall in prices during 2020 due to the crisis caused by the COVID‑19, in January the prices recovered and stayed at just 10 cents of €/MWh of the price forecasted more than ten years earlier. Which was the forecasting of other consulting firms in October 2010? One of the characteristics of the AleaSoft’s models is the stability. The robustness of the scientifically‑based models means that they are not affected by the fluctuations inherent in the market and they always seek the balance at the long term.

Information and analysis of the energy markets in Europe

At AleaSoft, a series of webinars is being organised since the end of last year to analyse the “Prospects for the energy markets in Europe from 2021”. The next webinar will be held on February 18 and it will feature the participation of speakers from Engie, who will talk about the PPAs and their coexistence with the renewable energy auctions. The next part of this series of webinars is being organised for March 18, this time with the presence of speakers from EY (Ernst & Young).

In addition to the cycle of webinars, on February 4 at AleaSoft a workshop will be held to show the AleaApp Platform, a tool that compiles the data from the energy markets and facilitates their visualisation and analysis through comparative graphs of variables, calculation of the moving average and temporality changes of the series, among others.

The next workshop will be held on February 11. This time it is a workshop targeted at the agents operating in the electricity spot and futures markets that aims to show how they can make the most of the mid‑term market prices forecasting and stochasticity.

At AleaSoft a wide variety of reports for the energy sector that cover the main markets in Europe is also available. New complementary services associated with the long‑term prices curves reports are also offered to advise on their use.

Source: AleaSoft Energy Forecasting.