“Solar power forecasting is an ongoing exercise”: an interview with Ronald Huisman
According to the new structure of the Ukrainian power market, RES operators will need to submit accurate forecasts of RES production volumes. If those forecasts are not accurate enough, those RES operators will be responsible for imbalances on power grids and have to pay huge penalties.
In this interview, Dr. Ronald Huisman shares his views on the current situation on the Ukrainian renewable energy market and recommends companies to learn from EU experience by investing in the accurate power forecasting.
Ronald Huisman is a Partner at Modex Analytics with 20+ years in the Energy industry and associate professor of Energy Finance in the Erasmus University Rotterdam in The Netherlands.
Ronald, what situation do you observe in the Ukrainian renewable energy market?
Many things are changing in the Ukrainian energy market. I’ve spoken to several companies and experts in Ukraine. One of the most important things there is that renewable energy producers will be held responsible for the imbalances they generate. This is a big change which will take place later this year. It means that income from solar parks, wind parks will not be guaranteed any more.
How changes in legislation can affect margins of the renewable energy companies? Do they similar to something that the Netherlands went through?
Yes, the Dutch energy market started to liberalize many years ago, in 1999. I remember in 2003 a few energy companies went bankrupt because prices went much higher than expected. They took the risk, they gambled on the prices, etc. Those huge price increases that were there in the summer because of the heatwave, that exists in the Netherlands, made these companies go bust.
We’ve also seen high prices in Germany in May, for instance, electricity prices of minus 70 euros per megawatt-hour. This has a big impact on your revenues. So, you want to protect that.
In the Netherlands, after 2003 we learned a big lesson out of this. Energy companies started to worry about forecasts, risk management, cash management, and things like that. I think it is much more important now in the Ukrainian market as well.
For the Ukrainian market, RES companies will go from cash flow, which before was risk-free or guaranteed to the territory when they have certainty only if they manage it well.
What is the solution out there?
Well, I think it starts with having a good prediction of actual generation volumes will be in the next 15 minutes, 3 years ahead, etc. By having that, you will have fewer surprises between your actual realized volumes and predicted volumes, fewer imbalances, and fewer risks.
How does it work?
What I did in the Netherlands, is or example, for my solar park. When you start one, you look at the characteristics of PV panels, location, you can use some formulas from physics to translate a better forecast into a prediction. But that’s not the best thing. But later, when you have historical realized data, you can use it as well. Then you start blending physical formulas with historical data, using Machine Learning. Then, you can add info on other parks and start combining more historical information from the different weather forecasts. Because especially for the windmills and solar parks it can depend on the wind direction, weather station you would like to emphasize. This is something that you can learn later.
Don’t see power forecasting as a tool you can buy and that’s it. Solar power forecasting is rather about ongoing exercise. In my energy company in the Netherlands, we do research every quarter. And we always find new things we could add to make predictions better. I think those companies must start modeling or forecasting.
Why do RES companies need to invest in accurate power forecasting?
Because energy companies have to submit programs to the system operator, saying ‘we expect tomorrow to produce this and that and this is our forecast’. If the actual production is lower or lower than expected, than they generate an imbalance, so these forecasts have to be accurate to have the lowest amount of imbalances. That’s the key thing and why you have to invest.