The electricity price we see on the market is not yet the final price at which we actually buy or sell electricity. The outcome is determined by the accuracy of production and consumption planning, hedging, managing daily consumption and production profiles, and the ability to react to intraday developments. In the energy sector, the difference between plan and reality can very quickly turn into additional costs.
When people talk about electricity prices, most imagine something simple. They look at a daily market graph, see morning and evening price peaks, a midday price drop, and draw a fairly logical conclusion: produce during peaks and consume when electricity is cheap. At first glance, this makes perfect sense. However, this is where one of the most common misconceptions in modern energy arises. The fact that a certain electricity price exists on the market does not mean that a specific operation will actually achieve it. The reality of energy is more complex. The price of electricity is not just a number on a price chart, but the result of an interplay between the operational plan, traded electricity on the market, and the ability to actually adhere to what was planned. And it is precisely here that the economics of an entire operation often falter.
Každá inaccuracy turns into a deviation
The energy sector operates on a very simple principle: electricity must be generated precisely at the moment it is consumed. Therefore, at every moment, the balance of production and consumption must be maintained throughout the entire power system. In the Czech Republic, this balance is continuously monitored and evaluated by ČEPS. The system incorporates plans from both electricity producers and consumers – i.e., information on how much energy will be supplied to the grid and how much will be drawn from it in individual time segments.
Today, this balance is accounted for and evaluated in 15-minute intervals, meaning each day is divided into 96 separate intervals. In each of these, the production and consumption plan should correspond as accurately as possible to reality. However, if actual operation deviates from these plans and the balance is no longer maintained, ČEPS must intervene using so-called balancing energy – i.e., by calling upon ancillary services from rapidly available electricity sources that stabilize the system. And it is at this moment that a concept crucial for operational economics arises: deviation.
Deviation means the difference between what was reported on the market as a production or consumption plan and what was actually produced or consumed. In other words, the difference between the planned and actual energy balance in a given operation. If a deviation worsens the current system balance, it represents a cost for the operation, which can be very high in some situations.
It is true that there are not infrequently cases where a market participant's deviation can paradoxically even bring profit – this happens in situations where deviating from the original plan actually helps balance the system. However, relying on this is like playing Russian roulette. If you play it, you must be prepared for the possibility of an accident. The basic rule of energy trading is therefore: anything not agreed upon in advance and included in the planned balance is a deviation.
Operations are not a straight line
Most operations do not have constant consumption or production. Every energy source or consumer has its typical profile. In the morning, consumption may rise, in the afternoon it may fall, and in the evening it may increase again. For industry, shifts, technological cycles, or shutdowns are added to this. For heating plants, it's the weather and the system's heat demand. And this profile is now evaluated in 15-minute intervals. Just a few years ago, the market was simpler. Hourly trading could smooth out minor inaccuracies. Today, that no longer works. Each 15-minute interval is counted separately – and every inaccuracy becomes apparent.
When operations address electricity procurement, the discussion usually simplifies to two options: fixed or spot. A fixed price appears to be a certainty at first glance. In reality, however, it works differently. The trader typically looks at historical operational data, statistically assesses its typical behavior, attempts to fix most of the profile on the long-term market, and based on this, creates a price offer. This price also includes coverage for typical deviations and anticipated prices on the daily market. And the less predictable the operation, the higher this risk premium. As a result, a fixed price often includes a reserve that can amount to tens or even hundreds of crowns per megawatt-hour. In some cases, this means a difference of five, ten, or even thirty percent of the electricity price. Simply put – the client doesn't just pay for electricity. They unequivocally also pay for the unpredictability of their own operation.
A spot product tries to get closer to market reality. The price is derived from the actual market development in individual hours or 15-minute intervals. However, this alone does not solve the problem. If the trader doesn't know how their customer's operation will function tomorrow, they still have to rely on statistics. And as soon as the actual profile differs from the planned one, a deviation arises, along with associated costs that the trader incorporates into the overall price. Therefore, today, the ability to plan and adhere to the operational profile is much more important than the product itself – fixed or spot.
How a real daily plan is created
Energy trading is not actually a one-time purchase or sale of electricity. It is a multi-layered process. The first layer consists of long-term purchases or sales on the forward market to cover the basic shape of the annual profile. Here, the basic volume of energy is secured – for example, for a year, quarter, or month. However, this so-called baseload assumes constant 24-hour consumption – and almost no real operation actually behaves this way. Therefore, the second layer comes into play – daily planning. For every trader, it is necessary to decide each morning how a given operation will function the following day. It is essential to predict what the consumption will be, what the production will be, which sources will be in operation and when, and also how weather or consumer behavior will affect this. All of this influences the resulting price of individual 15-minute intervals, which no one knows precisely in advance. But the story doesn't end there.
The energy sector is highly dependent on reality. A change in weather, a technological malfunction, or a minor operational change is enough – and the plan no longer matches reality. Therefore, there is a third layer of trading: the intraday market. On this market, trading positions are continuously adjusted throughout the day according to how reality differs from the original plan. The goal is to minimize deviation and avoid costly and price-unpredictable balancing energy. However, even here, absolute accuracy cannot be achieved. There will always be some difference that the transmission system operator must balance. And it is at these moments that the price of balancing energy can skyrocket – for example, during the outage of a large power source or transmission line anywhere in interconnected Europe.
All of this leads to a simple conclusion. Even a technologically advanced source can be economically unprofitable if it produces at the wrong time. Just a few hours' difference is enough. Missing a price peak is enough. Or producing when there is an excess of electricity in the grid. A typical example is cogeneration units, which historically ran continuously due to operational support or heat demand. However, under new market conditions, it may be much more advantageous to operate them as peaking sources – i.e., to produce electricity mainly during hours when it has the highest value. Technologically, this may be more demanding. Economically, however, it is often significantly more advantageous.
Daily communication is key
All of this leads to one important conclusion: energy trading today cannot function without daily communication between the trader and the operation. It's not enough to sign a contract once a year and consider the matter resolved. It is necessary to work with the operational plan every day, update it according to reality, and continuously react to market developments.
This is precisely where ORGREZ TRADE's approach differs from that of a typical electricity trader. The foundation is daily work with operational data, as well as long-term planning from operational campaigns to planned shutdowns. Every morning, production and consumption are predicted, which the client can adjust according to the actual state of the technology – for example, unexpected malfunctions or operational changes. Based on this data, price predictions, and weather forecasts, an optimized operational plan for the following day is created. This plan can, for example, recommend when to start a cogeneration unit, when to charge heat storage, or when, conversely, to produce heat from another source. The goal is always the same – to produce and consume energy at the moment it makes the most economic sense. It is clear that such communication cannot effectively take place by phone or email. That is precisely why, together with NITES, a.s., we developed the ENEXA system, which handles daily planning, communication, and trading.
However, ORGREZ TRADE goes beyond mere trading. Thanks to its many years of experience in operating energy sources, it can combine trading with asset management and technical consulting. This means not only trading energy but also assisting operations with long-term planning. For example, advising on when and in what volume to fix electricity prices, when to purchase fuels, how to plan investments, outages, repairs and maintenance, how to set heat pricing, or what technology could bring the greatest added value.
The result is the integration of three worlds that have long been separate in the energy sector – technology operation, energy trading, and strategic investment planning. And it is precisely this integration that now generates the greatest economic value.