Redefining ETRM by CTRM Center

WHITE PAPER

Redefining ETRM

A ComTechAdvisory Whitepaper

Redefining ETRM

INTRODUCTION In the world of E/CTRM software much is changing and at a fair pace. Driven by a plethora of new business needs, massive shifts in technology, and changes in software procurement behavior, it is a software category that is ripe for a true paradigm shift. In a paper written a few years ago, Commodity Technology Advisory (ComTech) outlined a potential solution to some of the issues that have plagued buyers of E/CTRM software for decades1. In that paper, the authors proposed a different approach to architecting E/CTRM solutions – that is creating an ecosystem of software capabilities rather than relying on the monolithic applications that have, or invariably will, become increasingly expensive and difficult to deploy, update and maintain. ComTech noted that such an approach was both technically feasible given the advent of cloud technologies and desirable as it helped solve the myriad of business issues buyers face today. Since then, business trends have continued to evolve in directions around data management, digitalization and automation, and collaboration. More recently, lockdowns and the need for business continuity have only served to push the envelope faster and further. As ComTech stated at that time “Throughout, the

CTRM solution that addresses all commodities

twenty-year history of the software category, the

and markets – is almost certainly impossible to

perceived “Holy Grail” has often been to develop a

commercially achieve and, frankly, is ultimately probably

singular comprehensive solution - one that covers all (or

not desirable. Rather, the most reasonable approach is

at least the most common) commodities, geographies,

an architectural approach – one that combines specific

supply chains, and assets. Unfortunately, experience has

modules or individual products that can address the

proven such a solution to be more or less impossible to

specific needs of an individual company and the market

commercially achieve and support - and yet, there is still

or markets in which they operate. It is our thesis that

a lingering sense in some corners of the market that this

CTRM/Commodity Management is, and should be, an

remains the ultimate goal. Though many lessons have

architecture first and foremost - one in which specific

undoubtedly been learned as some vendors (and a few

technologies and solutions are deployed to solve the

market participants who invested in bespoke solutions)

litany of complex problems faced by today’s market

tried to build the singular solution that could address any

participants.” Since that writing, the authors’ assessment

prospect’s needs, ComTech now believes that the “Holy

has not changed.

Grail” - a singular, monolithic Commodity Management/

1. https://www.ctrmcenter.com/publications/white-papers/ctrmcm-architecture-approach-20-year-old-condundrum/

A ComTechAdvisory Whitepaper

Redefining ETRM

THE PAST Until relatively recently, E/CTRM solutions were built more or less as an after the fact recording system to help manage trade transactions. They were often built by vendors that needed a stream of new customers and implementations to keep them afloat relying on traditional perpetual license and support fees for their security. Their solutions were built to be highly configurable to cater for as many of the broad requirements across the market as possible, since the vendor needed more and more sales to keep things going. Each implementation necessarily involved enhancements that may or may not be rolled into the core product and those implementations could be very long and very expensive. Many implementations failed entirely or were concluded on a suboptimal basis not truly delivering the anticipated business benefit. Once users made a product selection they were essentially ‘trapped’ into a single vendor environment totally dependent upon that vendor for timely enhancements and upgrades to keep pace with rapid industry change. The vendor was also trapped to some extent in a world where the focus was on winning the next sale rather than optimally serving existing customers’ needs. The optimal outcome for all parties was when new customer needs aligned with broader industry requirements, though given each companies’ mix of assets, strategies and business processes, this was a rare occurrence. Upgrades were also expensive and slow to conclude. Insufficient vendor testing often resulted in the customer testing more rigorously than would be considered usual before taking an upgrade and, quite often changes to one area of these complex

pieces of software would break the software in two or more other places. Replacement of the solution was also extremely difficult, expensive and risky and many users feel trapped as a result. From time to time, the solution provider would be acquired by another vendor in the space seeking greater market share to satisfy its investors or stakeholders. Often, this acquisition would spell the death knell for the application as the vendor desired the users to migrate to another product – perhaps one they already rejected during the selection process or, the staff who knew the solution gradually left the acquiring vendor leaving behind insufficient product knowledge to adequately support the product. Very rarely was the acquisition good news for the users.

A ComTechAdvisory Whitepaper

Redefining ETRM

CHANGE, CHANGE AND MORE CHANGE Constant business change has been ‘par for the course’ in commodities. Increasing regulatory oversights, innovation of business models, and the need to rapidly morph and evolve with all sorts of business drivers including, • a switch to renewable generation and in buyer behaviors to cater for environmental and social issues, • a decline in trading margins, • new markets, new instruments and new types of contract including the rapid emergence of intraday trading, • new types of trade finance, • new regulations and reporting requirements, and so on. These have all combined to mean that most trading or commodity-related businesses must be much more agile with an ability to adapt and change or die. In recent years, significant geopolitical issues have also plagued the commodities industry impacting supply chains and, finally in the spring of 2020, lockdowns and home office placed the focus squarely on business continuity. In European power and gas, change has been driven by a shift to renewables primarily making intraday trading more important, creating huge amounts of data and driving a need for near real-time data and information. Technology has also moved fast. In an era where big data and data analysis is key, the move towards more real-time presentation of information in readily and

easily consumable formats has been paramount. Automation has also become necessary to reduce costs and increase efficiencies, as has ways to optimize assets – often involving AI and ML. However, the move to the cloud for much more scalability and lower costs has been one of the major shifts of the last few years – one accentuated by digitalization and the need for business continuity. Increasingly, E/CTRM software is being delivered as software as a service where fees are charged for usage on a regular basis rather than an up-front perpetual license. Similarly, the use of public cloud is enhancing scalability and reliability while helping to decrease costs. Even in cases of older, monolithic solutions, the adoption of rental or service level agreements is transforming payment from upfront licensing to usage payments.

A ComTechAdvisory Whitepaper

Redefining ETRM

TOWARDS ECOSYSTEMS Since the publication of the ComTech ecosystem whitepaper1, the market has seen some architectural changes emerge in E/CTRM software where more discrete applications are delivered along with APIs. As the authors said at that time “After 20-years of research and analysis of what are deeply heterogeneous markets that evolve and adapt very rapidly in an almost punctuated equilibrium model, ComTech believes that CTRM/CM is best thought of as an Architecture or ecosystem of commercial and potentially homegrown solutions as described above. We need to be able to get to the point where buyers can solve the problem through a buy and build approach within the context of an Architecture (or ecosystem).” This approach has also been proposed as a way to gradually migrate away from large monolithic solutions with a huge sunk investment - essentially replacing areas of functionality with more agile applications and migrating to more of an ecosystem. By breaking down monoliths of functionality into more discrete applications that deliver vertical functionality or horizontal features like workflow and approval, document management and so on, the well-known issues around E/CTRM software can be more easily tackled. Rather than trying to solve the problem of complexity with hugely complex and highly configurable monolithic applications, the solution can be delivered as discrete applications and API’s in an ecosystem. The benefits of using more discrete applications are numerous and include, 1. Easier maintenance – there is less code to maintain and any changes will have fewer impacts on other parts of the application versus the monolithic approach where a change in one part of the application can result in a ripple of impact across a large amount of code, 2. Increased speed of delivery – it simply takes less

time to deliver incremental updates to a smaller and more discrete parcel of code meaning users get their needs met sooner, 3. Reduced testing – in the old world of monolithic E/CTRM users always need to rigorously test the entire E/CTRM, solution, and this is time consuming, costly and often results in the discovery of other errors that need to be fixed (see 1 above). With a smaller application of more limited functional scope it is simply faster, less costly and easier to test, 4. Improved performance and scaling – Users often experience performance issues in key areas of their software like reporting or complex calculations and these are often run overnight as batch jobs. Any error means the batch job fails and so the results are unavailable. By reducing and isolating functionality and deploying them in the cloud, there is more flexibility of tuning hardware for performance and scalability as needed. This also means that it is less costly to run, 5. Reduced cost – all of the above adds up to less cost than maintaining, supporting and working with a large, complex monolithic solution.

A ComTechAdvisory Whitepaper

Redefining ETRM

With the recent issues around business continuity as a result of lockdowns, many more firms have looked at or migrated to the cloud for the increased business flexibility that it can provide. In the process, they have recognized more acutely that their current solution is complex, unwieldy and expensive to run and maintain. Even after the lockdowns are over, we expect more people to work from home or remote environments and we see this also as a key driver in moving to ecosystem

solutions in the cloud. Without the collaboration and ease of communication that can take place in an office environment, workflow and process control becomes increasingly important to ensure that work gets done and people collaborate on a timely basis. We see workflow and similar horizontal functions, like document management for example, as key components in the future ecosystems.

BREAKING THE PARADIGM While ComTech has seen a movement towards more of an ecosystem approach in recent years, there continues to be a number of other characteristics of the current paradigm that should also change. These include the following, • Vendor dependency – many users are tied into a particular vendor and dependent upon it for their E/CTRM solution. If that vendor runs into financial troubles, is acquired by another vendor, is more focused on winning new business to maintain its revenues, or simply starts to behave in a manner that the buyer doesn’t appreciate, there isn’t much that can be done. The customer has little leverage and could be exposed to increasing costs and difficulties. By using an ecosystem approach ideally, the buyer has vendor choice, and can both utilize applications from different vendors to minimize risk as well as switch vendors and solutions more quickly and cost effectively. They can more easily use commercial applications for basic functionality and homegrown

applications for more strategic functions if they so desire. • Collaboration – As mentioned above, collaboration is important both between different parts of the same business as well as with partners, customers and stakeholders. Using tools such as workflow and automation, collaboration can be managed, tracked and errors and omissions reduced. ComTech expects that tools to promote collaboration as well as add controls will be easier to deploy within an ecosystem approach. • Technology adoption – The ecosystem approach and segregation of functionality will likely make it easier to adopt new technologies such as automation, AI, ML and blockchain in the future.

A ComTechAdvisory Whitepaper

Redefining ETRM

TIME FOR CHANGE The combination of business drivers and technologies is set to fundamentally change a great deal in the world of commodities and certainly within the E/CTRM software category. The need to increase efficiencies, optimize assets, increase business agility and keep costs down are made potentially feasible by adopting newer technologies like cloud, AI, ML, better programming languages, in memory databases and much more. Evidence of

these changes are emerging with many innovative new business models and approaches to attempt to solve the problem. One of which has been announced by start-up Previse Systems.

PREVISE SYSTEMS Founded by a group of veterans in the industry who have directly experienced all aspects of the issues associated with monolithic E/CTRM software and the old delivery paradigm, Previse has brought something new and innovative to European energy markets. Having seen and worked in ETRM where solutions are often expensive, difficult and costly to implement, on client/server or older technologies, and always need to be customized to some degree from vendors that are constrained by poor financing or high debt, it has rethought the entire approach and separated out the ETRM into three distinct elements; 1. A user-owned common trade repository (ChorusLink) where each trade is stored and accessible by all parties to the trade in a fast and secure environment, 2. A high-performance position application (Coral) that delivers the ability to quickly and easily visualize, and process large volumes of data, and 3. An app store-like platform (Coral Ecosystem) where

third-parties can offer incremental and purposebuilt functionality that can easily be added to the customers’ ecosystem and provides choice and competitive prices.

Users co-own the trade repository – ChorusLink – where trades can be captured just once and managed

Redefining ETRM

as a single data object. Counterparties can validate the trade there reducing to a minimum a lot of often very manual reconciliations and agreements on trades. By joining the ChorusLink consortium, trade reconciliation, settlement and regulatory reporting becomes even easier. Using an industry standard trade repository like ChorusLink also ensures that users retain control over their data as opposed to having it under the control of a vendor and stored in a standard format rather than a vendor-proprietary format. Each user company is a part owner of the repository that will initially utilize Previse for maintenance and support but which, after a quorum has been reached, can dictate its own directions and future. In this model the users own their data and where it is stored. Position management of both physical and financial transactions is a key aspect of trading and it requires both speed of performance and to be near real-time to inform decisions. It is also where major controls are placed in terms of various limits and so on.

A ComTechAdvisory Whitepaper

Previse’s Coral application combines information from ChorusLink, internal trades and production/ consumption forecasts, and market prices providing input for business intelligence and risk management.

Previse Systems will become the ‘Apple’ of the ETRM space allowing the delivery of a full and complete product using an ecosystem of applications and API’s Jonas Nihøj, Director of Energy Trading & PPA Previse also desires to create an ecosystem of low cost applications that can be quickly and easily adopted by users via an app store marketplace offering public and private applications. By publishing API’s and other guidelines, third-parties including other vendors, consulting companies and even the users themselves,

Redefining ETRM

can add cost effective applications to the app store and offer them via subscription thus ensuring a healthy variety of applications from various sellers. Previse sees this as opening up a development ecosystem around its Coral application and on top of the ChorusLink database and states “that 99% of the functionality available in its UI is available from API’s that can be called.”

The entire idea is unique and will reduce the costs of ETRM substantially while providing an enabling ecosystem to support innovation Jonas Nihøj, Director of Energy Trading & PPA This approach represents a real shift to the paradigm in that the vendor is not attempting to build everything for everyone (the ‘all singing, all dancing’ application)

A ComTechAdvisory Whitepaper

but has instead chosen to focus on delivering a ‘best in class’ position keeping application with Coral. It has then broken out the database as a separate horizontal component and offered it in a collaborative manner allowing all parties to gain deep efficiencies in the trade confirmation area to start with - but with potential to address other areas in the future. Finally, by publishing clear API’s and providing an app store infrastructure, it allows others to develop vertical and horizontal applications within a defined ecosystem. The benefits of this approach are many and include; • Speed of delivery is improved meaning that rapid industry change can be reacted to innovatively and rapidly, • Lower cost – in the Software as a Service model, costs are based on usage and all-inclusive; however, the App Store concept creates a competitive market that keeps prices down as well, • The entire approach allows for collaboration either

A ComTechAdvisory Whitepaper

Redefining ETRM

via the App Store or as a result of the ChorusLink ownership and participation model. Collaboration in that sense includes an end to tedious, error prone manual processes, • By breaking down the problem into smaller, bitesized chunks, functionality can be delivered faster and cheaper with less testing and more ability to tune performance and scalability, • Upgrades are delivered continuously as opposed to via specific projects that can be risky and require significant efforts in testing,

• The inevitable customizations that so often plague the traditional model and cause so many issues in delivery can now be performed vis specific private apps in the App store meaning that standard processes and functionality can be supplied with less effort and therefore lower cost. There are other benefits, of course, and with adoption, the approach will offer further benefits into the future. It will also change the paradigm of ETRM forever.

ABOUT PREVISE SYSTEMS Previse Systems develops innovative IT solutions for energy trading and related processes based on the latest technology.

have been showing severe systemic shortcomings to meeting these objectives in a satisfactory way, exacerbated in recent years by rapidly evolving markets.

As a start-up, we combine creativity, out of the box thinking and disruptive concepts with a solid vision on how we can reshape IT infrastructure for energy trading companies to increase intuitiveness, efficiency and scalability.

Previse Systems proposes a new paradigm for energy trading software to address these shortcomings. For more information, please visit www.previsesystems.com

Previse Systems believes that the objectives of information technology primarily consist in suporting business operations in the best possible way and at the lowest possible cost. Traditional approaches at energy trading companies

ABOUT CHORUSLINK At ChorusLink, our purpose is to spearhead a change of paradigm for energy trading software. We think ongoing trends in energy markets and technology platforms one step further and follow the vision of a common platform for energy trading data. This conceptual quantum leap facilitates process efficiencies, optimises investment returns on IT spending and fosters future infrastructure adaptability on an unprecedented level. ChorusLink was founded by Previse Systems as the cornerstone of a radical re-design of the software function in energy trading and risk management (ETRM). ChorusLink redefines the mechanics of energy

trade data storage by introducing the common trade repository. Moving to a single data object per trade and a standardized format in a highly performant trade repository enables you to facilitate automation and streamlined processes at significantly lover costs. For more information, visit www.choruslink.ch.

ABOUT Commodity Technology Advisory LLC Commodity Technology Advisory is the leading analyst organization covering the ETRM and CTRM markets. We provide the invaluable insights into the issues and trends affecting the users and providers of the technologies that are crucial for success in the constantly evolving global commodities markets. Patrick Reames and Gary Vasey head our team, whose combined 60-plus years in the energy and commodities markets, provides depth of understanding of the market and its issues that is unmatched and unrivaled by any analyst group. For more information, please visit:

www.comtechadvisory.com ComTech Advisory also hosts the CTRMCenter, your online portal with news and views about commodity markets and technology as well as a comprehensive online directory of software and services providers. Please visit the CTRMCenter at:

www.ctrmcenter.com

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