AleaSoft Energy Forecasting, October 27, 2021. Interview of Concha Raso and Rubén Esteller, in the digital magazine of Energía of El Economista, with Antonio Delgado Rigal, PhD in Artificial Intelligence, founder and CEO of AleaSoft Energy Forecasting.
“The basis of everything is making long‑term bilateral contracts to get out of the troubled waters of the daily market”
AleaSoft has offered its services in the energy sector for more than 20 years. How has the company evolved?
AleaSoft was created on October 8, 1999. Our first client was Endesa. For two decades we have offered forecasts of electricity demand, renewable energy production and electricity market prices at the short‑, mid‑ and long‑term to all types of energy sector agents: utilities, System Operators, traders, retailers, large consumers, all kinds of generators in the electricity industries, as well as banks and investment funds. In addition to working for the most important companies in the country, we are having a strong penetration in the European market, and growing at the rate of one client per week. The markets with the most movement are Italy, the United Kingdom, Germany, France and, lately, Poland and Romania. They also ask us for forecasts for Ireland, the countries of the Nord Pool, Central Europe, the Balkans, Greece, that is, all of Europe in general.
How do you assess the Government’s measures to stop the rise in energy prices?
The Royal Decree ruined everything we were doing in the last ten years. More than a shock plan, this was a violent clash against the sector. Article 4 of the RDl on the reduction in income from the rise in gas price was a great mistake that we thought that was going to be rectified and that is producing very negative consequences. The Government penalises in a confiscatory way a certain billing based on income that it considers excessive, but when last year the market price was €10/MWh, nobody spoke that the price was low and that the electricity companies were charging little.
How will these measures affect investments in renewable energies in Spain?
The most important thing for an investor is trust. If there are certain rules today, they should not be changed tomorrow, because investments fall; that is why there are countries in which nobody invests, because there is no legal or regulatory security. Investors already know the RD and they are putting on the brakes. PPA are not being signed because there is regulatory uncertainty. Development companies and investors are our friends. Our enemies are CO2, emissions and energy isolation and the Government should make a strategy against them. We have the resources needed to be independent. Simply, it is necessary to invest, generate wind and PV electricity, produce hydrogen and export, but we need investors. If we confuse who the enemy is, who are we going to count on to make the transition?
The CNMC is investigating the causes of stoppages of wind and photovoltaic energy installations on the first Sunday in October. Is what these companies did legal?
No government or judge can force any company to produce at a loss under the rule of law. In fact, contracts are starting to break down, because companies can no longer sell electricity, for example at €40/MWh, when they are being charged at €200/MWh, which is what the market says.
Large industries and energy‑intensive companies started to stop part of their activity. Which measures should be taken to reduce their costs?
We are in an exceptional situation. Prices are exceptional and the Government has to take exceptional measures, but legally founded as it happened during the pandemic. For example, stopping companies so that less gas and electricity are consumed and helping them, meanwhile, with ERTES or other types of aid.
The European Commission presented a package of measures to alleviate this energy crisis. How do you assess them?
A fundamental measure that was not taken is the issue of CO2, which is directly affecting the electricity price. Right now the price is around €60/ton. It is very high and cannot be assumed. It is a price that we invented in Europe to promote renewable energies during the next 30 years. But, suddenly, that price, which is a stimulus for renewable energies, became a punishment for large and electro‑intensive consumers. What happens with those that produce electricity? That they make the CO2 price affect offers and that, in the end, is paid by the domestic consumer, the large and the electro‑intensive consumer. We are penalising vulnerable environments and businesses with very high prices without generating CO2. A thing that we invented in 2005 became a boomerang and its origin was denatured. What can Europe do about it? One option could be intervening in the CO2 market, another removing speculation from this market or, exceptionally, making a moratorium on CO2 during one year for electricity generators (electricity, gas, cogeneration and electro‑intensive) and exempt them from paying this tax.
The average electricity price in the wholesale market exceeded the barrier of €300/MWh. Which do you think that will be the maximum figure that it can reach?
The legal limit is €3000/MWh. I do not want to scare the readers, but it could be reached, so what the Government has to do is taking preventive measures to anticipate this possible situation. It cannot wait for reaching 3000 to get nervous. Europe is highly energy dependent, so any problem that occurs in any of the countries we depend on will cause an even greater increase in prices.
Which benefits would the creation of a European gas purchasing centre bring?
When we talk about large volumes, it is difficult for a single company to make a contract with a country. If contracts are negotiated by a Continent, they are much more powerful. The appropriate thing is making a strategic contract between Russia and Europe to consume gas for 20‑30 years at a final price. If the goal is to be oblivious to the gas price, the solution is to make long‑term bilateral contracts of large volumes and that can only be dealt with by countries or large companies.
What do you think of green hydrogen?
The Government has to play a very active role on the hydrogen issue. Green hydrogen is the future and the Government has to go one step ahead, build what is not there and enhance the green hydrogen production as much as possible: infrastructure to transport it, green hydrogen demand, green hydrogen generation, vehicles with green hydrogen, industry with green hydrogen.
Which countries of Europe is this energy crisis affecting the most?
AleaSoft analyses every week how the market is moving in Europe and we see that the champion in prices is the United Kingdom. They are very dependent on gas, although they still have nuclear energy, and the gas price affects them a lot.
Based on everything we talked about, what do you think that is the solution to get out of this crisis? How do you see the energy market in a year?
The basis of everything is making long‑term bilateral contracts to get out of the troubled waters of the daily market. Let’s imagine that the daily market price only affected traders and those who have to buy at the last minute and that it was 10%, and that 90% of electricity contracts, and even gas, were signed for one year, two years, three years. That would make us reach a stable and equilibrium price. What would happen if the price rose? Well, no one would find out, and it would only affect those who voluntarily go to the market. Domestic consumers and SMEs should be able to have longer‑term contracts with better prices.
Source: AleaSoft Energy Forecasting and El Economista.
