Grasping new technologies is a key challenge for energy risk managers

Understanding what new technologies offer is a top challenge for energy risk managers, survey finds

As the energy industry pushes forward with digitalisation, risk managers are increasingly focused on technology: how it can improve efficiency within the risk function and the wider business, as well as the potential risks of using, or not using, new technologies.

However, gaining a sufficient understanding of what improvements new technologies can bring to an organisation can be extremely challenging. In Energy Risk’s 2021 Software Survey, 70% of respondents said the biggest IT challenge for energy risk managers and traders was “understanding what new technologies are available and applicable” (see figure 1).  

 

The survey, which was carried out between February 1 and March 5, 2021, polled 227 users of commodities software at energy firms, trading houses and consultancies about their experiences with commodities software, their IT challenges and agendas this year. The specialist poll has been running alongside the Energy Risk Software Rankings since 2005, providing 16 years of data charting the use of software by the risk and trading functions of commodity firms. Its findings highlight many underlying trends and show the spread of new technologies and the digitalisation of the sector. 

In this year’s survey, just under 46% of respondents said having to work tactically rather than strategically was a top IT challenge, with a third saying it was understanding what competitors were doing. Perhaps reassuringly, only 7% of respondents said their biggest challenge was getting time with the chief information officer.

In terms of technology budgets, just under a third of respondents said their IT spend would be more this year than last, with 43% saying it would be the same and 24% expecting a smaller pot in 2021 compared with 2020.

Energy IT landscape

The top three projects most likely to be requested by the risk team this year were expected to be developing predictive analytics, moving the commodity trading and risk management (CTRM) system to the cloud and CTRM system upgrade (see table A).

 

In recent years the survey shows a clear trend in the use of the cloud for CTRM applications. This year, 42% of respondents reported their CTRM system was fully in the cloud, compared with 30.5% in last year’s survey and just 25% in the 2019 poll. This year, 42% said they don’t have any cloud-based CTRM applications, a number that is on a clear downward trend from 54% in 2020 and 67% in 2019 (see table B).

 

However, the uptake of blockchain projects was much lower. Some 77% of respondents said their firm is not involved in any blockchain projects, with 15% saying they are using blockchain for operations and logistics and a further 10% saying they are using it for trading. When it comes to the use of artificial intelligence, 50% of respondents reported conducting some form of robotic process automation, with 41% carrying out algorithmic trading. Just 26% said they were carrying out sentiment analysis of social media. 

Challenges

The survey asked respondents to say which areas within trading and risk, or required by trading and risk, they see as being most beset by problematic IT issues (see figure 2).

 

Data cleaning and standardisation came top of the list, with 65.5% of respondents voting for it. This was followed closely by system integration with 65%. Developing analytics came in next with 55%. As this area was also voted as the top project most likely to be requested by the risk team this year, it would indicate that a lot of work will be focused on trying to address the major IT issues associated with analytics development.

Looking at IT issues that negatively affect trading and risk management functions, 61% of respondents listed their biggest hindrance as being vendors not fully understanding firms’ requirements (see figure 3). This was followed by poor customer service and support from vendors, which 55% of respondents listed. Some 35% of respondents indicated it was a hindrance having multiple relationships with software vendors, while 27% bemoaned contract or licensing issues.  

 

Satisfaction guaranteed?

Less than a quarter of respondents reported being “very satisfied” with their current CTRM software system, although 57% said they were fairly satisfied. A further 15% said they were “fairly unsatisfied”, with just 4% reporting being “very dissatisfied”.

This would explain why the largest number of respondents – 31% – said they were not planning to make any changes to their CTRM software system in the next 12 months. Only 12.5% said they would be moving to a new system developed by a different vendor, while 27% said they were planning to upgrade their existing system, staying with the same vendor. Meanwhile, 14% said they were doing major in-house developments, with 15% planning to make just small changes to certain parts of their systems.

Among complaints about their current CTRM software systems, the biggest, with 48% of respondents voting for it, was lack of flexibility to add or remove functionality (see figure 4). Some 35% of respondents complained of restricted coverage or a lack of functionality, with 27% reporting poor or slow performance. Less than 20% saw their system as being poor value for money.

 

In the past three to four years, consolidation of CTRM software vendors – an ever-present feature of the sector – has been more rife than usual. Ion Commodities’ surprise purchase of Allegro in April 2019, followed its acquisition of Openlink in March 2018 and Aspect in October 2017, all of which joined Triple Point Technology, which had been bought in 2013. Meanwhile, in July 2019, Hitachi bought ABB Power Grids, which had formed after ABB’s purchase of Ventyx and, in September 2020, Hitachi ABB Power Grids added Pioneer to its stable.   

The Energy Risk survey asked respondents if they were concerned by the level of consolidation in the CTRM technology world. Just under half – 49% of respondents – answered yes, while 30% said no and the remaining 21% were undecided.

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