AleaSoft Energy Forecasting, April 17, 2023. Interview by Raúl Masa Pacheco, Editor of Economía Digital, with Antonio Delgado Rigal, PhD in Artificial Intelligence, founder and CEO of AleaSoft Energy Forecasting.
Let’s start backwards, with the conclusions: Can we say that the worst of the energy crisis that started in the summer of 2021 is behind us?
The energy crisis began just a year before Russia’s invasion of Ukraine, as a premeditated act to put pressure on Europe with gas supplies. Since then, prices were rising throughout the summer of 2021 as geopolitical tensions increased and the dependence of Central European countries on Russian gas became evident. In the winter 2021‑2022, reserves were low and prices in Europe went through the roof. Little by little, a shift towards the liquefied gas that comes by boat helped to get through that winter. For the last winter, measures such as having the maximum reserves possible had already been taken and fortunately the winter was not very cold.
On the other hand, gas demand has also decreased, especially in the industry sector which, with such high prices, has lost a lot of competitiveness, which has helped to reduce the tension between supply and demand, favouring a gradual drop in prices. In general, we can say that the worst is behind us, there are alternatives to Russian gas, and renewable energies, fortunately, have a lot of support from the European authorities since they are essential for the decarbonisation, but also for the energy independence.
There are some important reforms on the table: PVPC in Spain and European electricity market. In this sense: How will it ultimately affect consumers? Will they impact prices directly?
As we, AleaSoft, stated at different forums, the electricity market is not being reformed, improvements are being proposed, that is, the European electricity market will continue to be the same, marginalist and based on the same principles of “free market” and “no price interventionism”. This is essential for the legal and regulatory certainty of future investments.
The PVPC regulated tariff, “Voluntary Price for the Small Consumer”, currently depends on the spot market price and this is something that must be improved because it is affected by the price volatility. The spot market is a necessary market, but it is a wholesale market that is not intended for the final consumer. The regulated tariff must have a component of mid‑ and long‑term market prices, which are more stable. The proposed improvements should help consumers and producers by stabilising the price in the long term.
Speaking of electricity prices, what scenario awaits us from now to the end of the year? And for 2024, is there room to anticipate any forecast?
If we analyse the historical data of electricity market prices, apart from the extraordinary situation in which the energy markets have been in the last two years, we see that prices have always been fluctuating around an equilibrium price. This is dictated by the theory of how markets work: for the market to work there must be a balance between the prices set by the supply and those that the demand is willing to pay. The European electricity market was unbalanced by the Russian invasion of Ukraine. The pre‑COVID‑19 balance must be reached at some point in the future.
With a certain perspective, has was everything possible been done from the political side?
From the political side, everything possible has been done to help consumers who are those who suffered the most from the exorbitant prices. The “Iberian exception” was a good initiative that helped to have lower prices. However, this marked interest in “changing the market” does not help legal certainty and scares away investors. The markets are formed by two parts, those who consume and those who generate, and both parties should benefit from any regulatory change.
As for the renewable storm that is coming our way: Is the ground being prepared well?
It is a storm of wealth, which is the best thing that can happen to us. Spain will transform from being an importer of polluting energy to an exporter of clean and renewable energy. At AleaSoft we advocate that energy storage must be promoted much more. The tactical storage with batteries and the strategic seasonal storage with green hydrogen. The main renewable energies, wind and photovoltaic energy, are not controllable, which is why the complement of the storage is essential.
About AleaSoft, how has the company experienced the energy frenzy of the last two years?
These last two years we have had a lot of work in the four AleaSoft divisions: DataBase, Short‑Term Forecasting, Mid‑Term Forecasting and Long‑Term Forecasting (AleaGreen). It has been a big effort because we provide services for all European markets and in all time horizons. The markets went through situations never seen before. However, thanks to the Artificial Intelligence that we have used in our forecasting models for more than twenty years, we have continued accurately modelling the markets functioning. In addition, we have incorporated new topics such as hybridisation and batteries.
What lessons were learned from all that happened?
The energy transition is a very big quantitative and qualitative change, everything will be different in a few years. At AleaSoft we have been fortunate to be prepared for these changes and to help companies in this enormous task that we are undertaking together. It is increasingly important to have accurate forecasts, for all horizons, and to have a clear vision of the future that awaits us in order to plan investments and developments, especially of renewable energy, but also of energy storage facilities, smartgrids, and hybrid plants.
And how do you plan to implement it internally?
We are planning to address our growth with an ambitious global expansion plan. This year we will cover 35 European markets and the main markets of America and Asia. For these markets we will offer forecasts within all time horizons, from minutes to 40 years, ranging from electricity and gas prices to all variables that influence the energy markets: demand, renewable energy production, weather conditions, fuels prices, CO2 emission rights prices, etc.