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Pexapark Fundamentals

What is an ETRM system?

Many renewable energy players are still new to the concept of an Energy Trading and Risk Management (ETRM) system and are asking “what is an ETRM?” At the same time, experienced traders are asking “What does an ETRM for renewables look like?” as traditional trading portfolios increasingly include wind, solar and energy storage. In this article, we provide clear answers to the most frequently asked questions on this topic and some answers may surprise you!

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What is an ETRM System?

Energy trading risk management (ETRM) is an enterprise software solution that enables the management of energy commodities’ physical and financial trading. You may also have heard of CTRM (Commodity Trading and Risk Management). The difference between the two is scope: CTRM systems support all kinds of commodities, not limited to energy, such as metals, agriculture and ‘even cotton. The purpose of an ETRM system is to manage the trading lifecycle across the front, middle and back office functions – from deal capture and position tracking to risk analytics, valuation and reporting.

Who uses an ETRM System?

ETRM systems have been traditionally used by large trading houses and utilities managing a plethora of energy commodities, primarily natural gas, LNG, oil, crude oil, refined products and electricity. They have been popular in that sector because they facilitate hundreds of transactions and deals daily, which is in line with the primary business model of trading houses. As depicted in the table below, ETRM systems link each step of the trading cycle, connecting business processes conducted across the front, middle and back offices. Now, renewables are reshaping the energy landscape. In this new era, Independent Power Producers (IPPs) are evolving towards realizing multi-gigawatt, multi-technology, and multi-market portfolios. With this evolution comes the need to switch from ‘invest and forget’ models into a new generation of active energy managers where structuring, short-term positioning, and portfolio hedging are essential disciplines. Learn more about the new generation of Independent Power Producers here >> Energy sales management is now embedded in the DNA of the renewables industry, players are increasingly treating electrons from clean energy projects as tradable commodities. To thrive, they need the systems and data to support their sales decisions, and active portfolio management – and are now exploring ETRMs.

What does an ETRM for renewables look like?

Renewable energy portfolios are complex with greater routes-to-market optionality than traditional gas and power portfolios. They often include subsidies, long term structured contracts, merchant exposure and increasingly storage linked Flexibility agreements. An ETRM designed for a renewable energy portfolio, must handle:

  • Subsidy agreements: Feed-in-Tariffs (FiTs) or Contracts for Difference (CfD), Feed-in Premium (FiP), each with market or technology-specific compensation rules
  • Long-term Power Purchase Agreements (PPAs): typically 10+ years, bespoke and highly structured, learn more here
  • Short-term and ultra short-term PPAs: 1–3 years
  • Flexibility Purchase Agreements (FPAs): BESS offtake agreements such as tolling, price floors, or financial swaps learn more here
  • Green certificates: RECs (US), Guarantees of Origin (EU) and REGOs (UK)
  • Physical delivery contracts: must handle and differentiate between physical delivery contracts agreed on a park level along with financial hedging (financial swaps) traded on portfolio level

Additionally ETRM vendors must have the resources and expertise to keep up with changing subsidy frameworks and compensation rules. This is essential for accurate revenue reporting and decision support for sales, hedging and risk management.

How ETRMs quantify the ‘Holy Trinity’ of renewable risk

Portfolio and risk management for renewables requires the analysis and active management of three unique risks – price, capture and volume: Price Risk is the uncertainty of what price you will get for the energy you produce or uncertainty for the price you will buy energy at, as a result of high volatility in the wholesale market prices. Capture risk is the risk of falling renewables revenues (capture prices) as more wind and solar volumes are produced simultaneously. Prices are reduced during these periods as other, more expensive technologies will not be needed to produce electricity and therefore not set the price in the market. Volume risk is the uncertainty of generating expected volumes and meeting contractual obligations due to external factors such as fluctuations in wind speed and solar irradiation. Traditionally the middle office input in-house price curves and third-party fundamental curves into their ETRMS to manage portfolio risk exposure. However, in today’s renewable energy markets, capture prices are moving faster than fundamental price curves, increasing the risk of:

    • Mark-to-market volatility shocks
    • Sudden portfolio revenue adjustments
    • Model risk and poor hedging decisions

To accurately understand the value of your portfolio and to support confident hedging decisions and reporting, ETRMs must be fed dynamic, market observed price data. Pexapark’s price intelligence platform provides daily updated benchmarks for wind, solar and co-located BESS across Europe and North America. Derived from its robust quantitative pricing model and calibrated against real-world evidence – 1,500+ monthly price points from active buyers and sellers in IOSCO aligned price polls. It reflects real market sentiment on how deals and risk are being priced. Learn more here >> Sophisticated utilities and trading desks now blend Pexapark’s market-based price curves with fundamental price curves, to create price visibility that moves in line with the market.

Why market-based price intelligence is a critical component for any renewables ETRM

In illiquid and opaque renewable markets, independent pricing benchmarks are no longer optional. Pexapark’s market-consensus pricing enables utilities, IPPs, and trading desks to:

      • Strengthen IFRS 13 Level 2 valuation compliance, learn more here >>
      • Defend marks with risk, finance, and audit teams
      • Validate pricing and structuring models
      • Identify hidden shape and tail risks
      • Improve hedge and portfolio decisions

The challenges of ETRM systems for renewables business models

Contracts for renewable energy are complex and bespoke. Traditional ETRM systems often require cumbersome workarounds. When evaluating an ETRM solution, renewable energy portfolio and risk managers should ask:

  • Are you paying for features you don’t need, such as managing physical dispatch or time-sensitive intraday trading.
  • Do revenue logics correctly apply for PPAs, FPAs and subsidies in your active and pipeline portfolio?
  • Will the ETRM cater for PPAs, FPAs and subsidies without constant customization?
  • Are compensation logics updated quickly when regional support schemes change?
  • Can the analytics quantify diversification benefits and risk correlations across portfolio assets?
  • Does it support risk-adjusted deal valuation?
  • Most importantly: Are the price inputs independent, observable, and defensible?

250+ organizations across Europe and the US rely on Pexapark benchmarks to support valuation and portfolio decisions Download our brochure to learn more >>

Or book a demo today and see how Pexapark’s price intelligence can support your clean energy trading.