Harnessing Numerical Optimization for Project BiddersWed, 02/21/2018 - 17:30
With the fourth long-term auction approaching, project bidders not only need to deal with higher interest from several private players but also the increased competitiveness of each power-producing technology involved and undertake a careful and precise analysis of any and every variable that can make a difference between a viable project and a declined offer, says Nicolas Melissas, Director General of Athena Consulting, who adds that financing is a big part of a bankable strategy.
“Some of the projects were taken to the auctions without actually going the extra mile to ensure financial support from financial entities for a winning bid,” says Melissas. “There are also more project implementation problems than previously thought, such as gaining land permits, which is making this an even harsher environment. Some first auction winners may end up having to pay bid forfeiture penalties.”
The auctions required power, energy and CELs from either clean or renewable energy sources, and Melissas considers it unusual that renewable energy firms using intermittent energy sources like wind or solar are allowed to submit auction proposals for power. “Power is a service that combined-cycle plants handle better because they can produce a stable intake of electricity on demand,” he says. But the very design of the long-term electricity auctions is extremely competitive as different power-producing technologies compete with each other. To remain in the game, bidding companies resorted to offering power supply. This is dangerous for the company and can potentially destabilize the market because power is needed even when the renewable resource is not producing it, Melissas contends. “As these companies are contractually obligated to offer uninterrupted power, they will resort to trading that power in the spot market, which can
be much more costly given short-term price variations and the conditions under which they are closing the transaction.” Melissas believes this issue should be promptly tackled by regulating authorities as “the development and successful conclusion of the projects from the first round will be critical for the prices that we see in future rounds.”
During the auctions, many firms offered almost an equal number of CELs as cumulated energy but that may not prove to be an optimal solution because, although the Ministry of Energy considers one CEL equivalent to 1MWh of energy produced through renewable energies, from a company’s financial point of view this might not be the case when designing a profitable model. “We noticed this discrepancy and are building a business model that will fill this gap through our software solution,” Melissas says. “We are also working to increase the number of variables and information in our software, such as energy trading data from Tradeon, a database of CELs prices and elaborate projections of these two variable, bidding tariffs and spot market prices.”
Athena Consulting specializes in numerical optimization, economics and auction theory, backed by 20 years of research. The firm is focusing all its efforts on applying its technical expertise and know-how to a user-friendly software solution rooted in Montecarlo computational algorithms and meant precisely for financial entities hesitant to participate in the auctions, to assist them in evaluating a project’s risk levels. “It can integrate the process from both the auctioneer’s viewpoint and that of the firm participating in the auction, an added value that not all companies can offer,” Melissas says.
Athena Consulting is developing a new algorithm to integrate into its solution to help bidders compute their optimal bids for the CENACE auctions. “Participating in an auction means computing power, CELs, cumulated energy amounts, a price for the package and whether your bids should be mutually exclusive or design a joint offer. This makes the process of creating an optimal bid extremely difficult.” The algorithm Athena Consulting is working on is expected to help firms compute their optimal bids and avoid paying noncompliance penalties