THE ELECTRICITY RETAIL MARKET: REQUERIMENTS FOR

AN E-BUSINESS SYSTEM

Victor Santos

ISCAC, Polytechnic Institute of Coimbra, Bencanta Quinta Agrícola, 3040 – 280, Coimbra, Portugal

LGE / LCT, University of Coimbra, Pólo II - Pinhal de Marrocos 3030 - 290 Coimbra, Portugal

Edmundo Monteiro

LCT, DEI, University of Coimbra

Pólo II - Pinhal de Marrocos 3030 - 290 Coimbra, Portugal

António Gomes Martins

LGE, DEEC, University of Coimbra

Pólo II - Pinhal de Marrocos 3030 - 290 Coimbra, Portugal

Keywords: Business to Business, Business to Client.

Abstract: In the last decade the electric energy market as changed is structure in several countries, mainly in the most

developed, ones where the regulated activity of electrical companies where a monopoly or an oligopoly of

all sectors from generation to the distribution. Changes brought new structures and new markets. The first

market is between the generation plants and the wholesalers. The second market takes pace in the wholesale

market where the retailers acquire the electricity that will sell to their clients the third market. To support

this new reality advanced information systems are needed. This paper addresses the use of e-Commerce

systems to support the electricity markets. The main requirements of the technological structure for an

electricity retail company in a deregulated electricity market are identified and evaluated. The purposed

solution is based on a B2B (Business–to–Business) structure to deal with the relations between the retailer

and the wholesale side, and a B2C (Business–to–Client) dealing with the relation between the retailer and its

clients that could be in the industrial, commercial, social or even domestic sectors.

1 INTRODUCTION

The small profit margin, the associated risk, and the

price spikes at the power exchange markets are the

ingredients that electricity retail companies have to

deal with on a daily basis. Retailers are the agents

dealing with the bottom part of the electricity value

chain, the clients / electricity consumers, who are the

ultimate source of income of the rest of the chain.

The electricity retailers have mainly three types

of clients, industrial, commercial and domestic, all

of them with different needs in quantity, capacity

and quality of service. Understanding each client's

needs and characteristics of consumption is crucial

for the retailer to forecast its power and energy

purchase requirements. An adequate technological

support is fundamental to take timely decisions.

The competition retailers have to cope with

force them to judiciously decide on the best way of

purchasing energy and power and, at the same time,

to diversify their supply portfolio of options to

clients, namely by offering other energy products as

gas and petrol, by providing several associated

services as energy management, remote or on site

energy audits, or even by selling energy efficient

equipment.

This paper addresses the use of e-Commerce

systems to support the electricity markets. The main

requirements of the technological structure for an

electricity retail company in a deregulated electricity

market are identified and evaluated. The purposed

solution is based on a B2B (Business–to–Business)

300

Santos V., Monteiro E. and Gomes Martins A. (2004).

THE ELECTRICITY RETAIL MARKET: REQUERIMENTS FOR AN E-BUSINESS SYSTEM.

In Proceedings of the First International Conference on E-Business and Telecommunication Networks, pages 300-305

DOI: 10.5220/0001394203000305

 SciTePress

structure to deal with the relations between the

retailer and the wholesale side, and a B2C

(Business–to–Client) dealing with the relation

between the retailer and its clients that could be in

the industrial, commercial, social or even domestic

sectors.

The rest of the paper is structures as follows.

Section 2 discusses the requirements of the e-

Business model for the electricity retailer. Section 3

discusses the technological requirements. Section 4

discusses existing standardization activities and

compatibility issues. Finally, Section 5, presents

some conclusions and directions for future work.

2 E-BUSINESS MODEL OF THE

ELECTRICAL RETAILER

This section discusses the requirements of the e-

Business model for the electricity retailer. The

requirement analysis is divided in B2B requirements

and B2C requirements according to the model

presented in Figure 1.

In the B2B part the interactions between the

retailers and the wholesale electricity market are

discussed. These include the relation with the Power

Exchange Market regulated by the Independent

Systems Operator (ISO).

In the B2C side the interactions involve the

retailer and the final clients, either domestic

commercial or industrial.

2.1 B2B Requirements

The B2B requirements are of two kind,

technological and business requirements. The

technological structure to develop has constraints of

different kind: time, reliability and security of both

sides of the business are retailer’s main concern.

At B2B side retailers have two main goals, buy

energy at the lowest price they can get and to ensure

the supply of the needed amount of energy each day

to their clients. In a deregulated market retailers

have several ways to buy electrical energy. At a

power exchange where there are several schedules

and regulations to use the electrical structure known

as the transmission and the distribution and

establishing contracts with the wholesalers.

Electricity as a commodity is ideal to online

trading because it is traded independent of his brand,

the information needed to sell it to the final user

could be easily managed online, and the speed of the

transaction is without question faster than a usual

trade. Nevertheless this type of transaction involves

participating in a centralized electronic marketplace

with different types of structures, where online

transactions represent faster and cheaper

communications.

Figure 1: Electricity Retailer a two side business with time constraints

THE ELECTRICITY RETAIL MARKET: REQUERIMENTS FOR AN E-BUSINESS SYSTEM

301

B2B

connections

Independent System Operator

Re taile rs

Real time

Hourly

Daily

Electricity Contracts

Wholesale Market

Financial

Bilateral

Full

Automatic

Automatic or

User controled

Figure 2: Main connections on the B2B side

The main difference from other commodities is that

electricity could not be stored, only small amounts

are possible or in an indirect way by controlling a

hydro storage plant, possibilities that do not permit

to make an increase of supply immediately. This

particular issue demands that retailers have to know

in advance the value that insures their compromises

with their costumers. And to acquire a superior value

that represents the margin that we never know when

it will be needed. With an e-business system

structure represented at Figure 1 is possible to adjust

the inputs reflecting the demand on the B2C side, in

real time and with quantities of adjustment that

never would be possible without an e-business

solution.

Retailers have a short margins of profit, around

2 to 3%, which means that a small change of price at

the B2B side will represent an adjust on time at the

B2C price. Hence delays could represent a severe

lost to economic healthy of a retailer.

There are three types of market structures that

can be adopted by the countries or states where

electricity deregulation is implemented. They are

Poolco, Bilateral Exchange and Power Exchange. In

Poolco there is only one buyer, a governmental

agency that sells to everyone, the Poolco operator

also runs the power system. The second type of

market is the Bilateral Exchange where individual

buyers and sellers make their deals privately.

However they might be forced to reveal part of their

agreements, because the Independent System

Operator must know and build the power schedules

based on that type of transactions. The third type is

the Power Exchange market where there is a

marketplace where buyers and sellers make their

bids and the independent system operator coordinate

the marketplace and the power system. These three

types of market structures are not mutually

exclusive, as it has been said above and it is possible

to have some common characteristics of them in a

market, depending of the structure adopted by the

region, country or state (Philipson, 1999).

Besides the above, there are multiple ways

retailers can buy electricity. To characterise these

transactions some parameters must be known. Price

and quantity are defined in some markets, where

others only define capacity, independent from the

price (United Kingdom). Besides the electrical

structure is de-regulated there is always a market

operator (deals with the economic structure) that can

also be the system operator (physical structure).

Also we can find different types of operators, some

more centralised others, more liberal. The market

operator known also as the Independent System

Operator - ISO (Rahimi, 2001), runs the electrical

transmission network, that usually belongs to a

regulated or state entity, that is independent from

any business intervenient. ISO also ensures that

buyers at the Power Exchange have the best price

usually obtained at a reverse auction where sellers

state their prices.

To retailers, electricity could be bought at

different periods of time, from an hour to a few

months, depending of the market design. The most

common is the day-ahead market to dispatch before

the operation day, next may be a long period market

preceded by an hour-ahead market. Besides the

electricity marketplace there is another way for

retailers to buy electricity, making several types of

contracts that could have public and financial

representation at the marketplace. The structure is

identical to a common financial market with

financial products, where there are several types of

contracts which goal is to minimize the risk. There

are also bilateral contracts between sellers and

buyers negotiated outside the market, although same

parameters necessary to be revealed to the ISO. This

way congestion avoidance is granted to all the

electrical structure, meaning to system retail that it

could be possible to have some contracts that are

ISO dependent. Retailers supply about 80% of their

needs with contracts of a few to six months, and buy

the rest at the electricity marketplace.

Figure 2 depicts all the significant entries to the

B2B. Next we will analyse the B2C outputs and the

requirements that could be improved by different e-

business models. An online structure for both sides

(B2B and B2C) is a must to the retail system.

There are basically three types of online

transactions: bilateral, market make exchange and

the multilateral exchange. The first one involve two

entities that which to make a trade The second one

market make exchange, basically is a market where

several buyers made bids to get a product, in this

case the transaction only occurs when the seller

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agrees with the price offered. The multilateral

exchange several buyers and sellers trade at a market

where they are anonymous and in a neutral place.

This is the ideal platform for a power exchange

where retailers are buyers and wholesale or

generators are sellers.

2.2 B2C Requirements

After bought the electricity how is built the price for

retailers costumers? Basically we have four

elements, the network price (transmission and

distribution use-of-system charges), electricity

losses, market fees (including ancillary service fees)

and retail gross margin (profit plus remaining retail

costs). To better explain the strategy for the B2C

side some questions must be answered.

What are retailers needed for? For generators

and wholesale power entities retailers represents the

costumers will. For industrial, commercial, small

business and residential clients retailers provide the

different needs in quantity, capacity and price.

Additionally, retailers provide complementary

products (energy efficient products, financial

products), services like energy management

consultant and energy procurement (warnings,

energy saving programs, industrial and commercial

electricity projects).

How can retailers improve the services they

offer? Besides the services mentioned above new

value-added products like green power (solar, wave

and wind energy), bundle products like gas, water,

telephone and internet services. New services that

could change entirely the way this business is made.

An e-Business system is a better system then the

traditional? An e-Business structure is the right one

from perspectives, retailer and clients. Marketing

and billing savings, customization of services is now

possible. A fundamental point is to massively

implement remote metering, creating incentives for

clients who acquire smart meters, which will be the

master piece to complete the all structure of an e-

business retailer system. Smart meters will represent

the better end from generation to the final consumer,

passing wholesale market, the retailers and reflecting

at the end the market variations.

B2C

Permantely

connected

Indus trial

Com er cial

Dom e s t ic

Clie nts

connections

Re taile rs

Se rv ic es , energy ma nagement, e-pr ocuremen t

Electricity

Bundle products, gas, telephone, internet

Energy efficient products

Electronic billing

Client customization

Quantities, Capacity, Quality, Services demand

Remote meter ing

Figure 3: Main connections on the B2C side

Nowadays using internet over the power line

will permit real time prices, real time algorithms

important instruments to build and treat historical

data from retailer’s client’s profile, without

additional costs, once it is possible to read, send and

process data at retailer centre all over power line.

With this structure retailers could say to his client

not only how much electricity they consume, but

when and what cost will pay with time constraints.

Figure 3 summarizes the connections between

retailers and their clients.

3 TECHNOLOGICAL

REQUIREMENTS

Both sides of the e-Business electricity retail

structure require different technological supports for

implementing a reliable, interactive and secure

system. The connections between the B2B and the

B2C sides are quite important to timely decisions,

requiring fast answers to external changes of the

markets and/or the client’s needs. At the B2B side

there are three types of connections, first between

the retail system and the marketplace, a second

connection must exist in a parallel way to the

independent system operator (the entity that operates

the financial and physical structure). This connection

is crucial and must function as a permanent line

since all limitations, and problems of the physical

structure are anticipated by a direct ISO connection.

Third a web site must exist for bilateral contracts are

establish between retailers and wholesale electricity

sellers. This site will enable bilateral online

transactions in private, automatic or by means of

human intervention.

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At the B2C side retailers could develop several

types of services but technological requirements will

depend first of the client connection or induced

connection that could be sold as a service bundle

with other products among electricity. Nowadays

Internet over power lines is a reality and this

technology put retailers services at domestic client’s

home. Remote real time electricity connections

make several services like energy management and

e-procurement possible to commercial and industrial

costumers. Retail connections to large clients like

industries, commercial, social and state buildings are

important if they could be permanent, for timely

decisions. Data communications over power line

with Internet connection have a physical medium

well known to retailers. Besides Internet services

associated, this connection will permit a better client

support to electrical client facility, opening the door

to remote services, like energy audits, energy

management services, electronic billing.

4 NEW STANDARDS DEFINITION

Several efforts have been made to allow the

definition of new standards already established for

different areas of energy management information

systems, also the creation of open communication

architectures trying to join different communication

needs of the distribution system (CEIDS DER/ADA

Project Plan, 2003), or also the standardisation of

consumer appliances and equipment in an advanced

communication networks could improve the

transformation of the energy system (Bosquet,

2004).

One important characteristics of a retailer e-

business structure is the need to manage the same

information but in different contexts. This means

that the same information used as a market

information data, can also be important to retailer

costumer or even to other different entities of the

deregulated electricity system like the ISO, the

wholesalers or at the head of the process to the

generators. As an example we could thought that the

amount of electricity that has been negotiated

between a retailer and his costumer will be billed

depending of the day ahead electricity value paid by

the retailer at the wholesale market, which is

influence by supply demand market balance. In the

end the Energy Management System of the retailer

client, or his smart metering system could also

respond (load management) to the increase/decrease

of electricity price. The faster the information

spreads the faster the reaction of all the players, all

depending of the communication system. If this

communication structure could have a common

message structure will improve system behaviour to

all kind of situations. Nowadays we have a high

number of standards all of them context depending,

meaning that we have several areas where the same

information is classified in the context of the

standard where it is applied. Areas like Residential,

Commercial, Buildings, IT, Telecommunications,

Market, Trading, Business, Industry, Systems,

Control, and Energy, Electric Generation,

Transmission & Distribution do have common

information at the deregulated electric system. The

creation of common standard or a common

communication e-business architecture is the

research main problem to the ubiquity of electricity

information in its system.

5 CONCLUSION

E-Business structures are fundamental to improve

transparency price policy with the benefits that it

represents to all. The electricity production chain

can reduce costs if costumers are inducing to a better

energy use all over the world. Smart meters have an

important roll in the e-business retail structure

because permits real time lecture, in a short time

periods, representing fundamental information for

historical data client profile implementation, and

future forecast consumes. Internet over power lines

made possible cost reduction for the e-Business

retailer structure since it don’t need an external

physical structure for data communications. E-

Business is the natural structure for electricity

retailers definitely.

Several benefits of the e-Business retail system

where presented. In the retail company infrastructure

costs are reduced, common software represents less

costs and a better adaptation and easy training to the

e-business system. Most of the times the hardware

used could be reused. Better adaptation to clients

needs means customization due to online services. In

competition with other companies, where time-to-

market improvement meaning a cost-effective

market entry in B2B and B2C sides. Improve

customer service and a faster costumer response,

increase revenue due to sales and marketing

efficiencies based on a B2C structure. Finally brand

dissemination has here a fundamental tool.

The definition of a common communication e-

business standard could eliminate information

redundancy at standard definition, widen application

areas, reduce information misunderstanding, and

optimise information distribution among all

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deregulated electric system. For sure a research

subject for future developments.

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