The Lantau Group

Over quite some time we’ve worked hard to maintain a strategic and not just a technical perspective on markets. There are always big ‘f-ing’ forces that rise up here and there and confound forecasts and alter strategies. Almost never are they related to precise heat rates or long term nodal prices. Many often overlook that a commercial market forecast is supposed to be an expected value. An expected value is typically the logical result of many possible outcomes averaged together. The logical results don’t always look like the results of a single perfect technical simulation. In one run a unit might be committed. In another it might not be. In a scenario the unit might need to be presented as an average of two states, looking nothing like a “correct” run in either actual state. And so forth. This is so often forgotten. So often ignored. We do have to pay attention to detail. But we also have to pay attention to uncertainty. The latter can be a much bigger factor for strategy and commercial consideration.

Learn Together Win Together As the apex body for electricity planning in India, the Central Electricity Authority (CEA) is committed to strengthening the sector through collaboration, knowledge sharing, and capacity building. We are truly overwhelmed by the enthusiastic response from the Western Region Distribution Companies and SLDCs to our two-day hands-on training program on #Stellar Planning and Resource Adequacy software. No five-star hotel, no advertisements, no hefty fees—just the humble conference room of our office. We expected 8–10 participants from four states, but to our delight, 28 participants arrived with their laptops right at 10 AM, and another 20 joined us online—all eager to learn. What made this program special was not only the knowledge shared, but also the valuable insights we gained from the rich experiences of participants in planning and system operation. This spirit of learning together perfectly reflects CEA’s mission of guiding and supporting the nation’s power sector. “Coming together is a beginning. Keeping together is progress. Working together is success.” – Henry Ford Three Aces of The Lantau Group team Ashish, Adamay and Ashutosh are great trainer , brillent engineers from our IITs. Central Electricity Authority (Cea), GHANSHYAM PRASAD Puneet Chitkara Alok Kumar Anshuman Swain JK Meena , GIRIJA SANKAR PATI support is really valuable. Ministry of Power Govt of India, Ministry of New and Renewable Energy (MNRE) NITI Aayog

Good sessions with end users in Korea yesterday on clean energy options and how the Korean market works. I was reminded that it would be so much easier today for end users to have more agency over their energy costs and mix had the reforms we worked hard on in Korea 25 years ago moved forward. Double shame on the California market meltdown and all those associated with it at the time. The ripple effect of that failure was an petrifying event in Asia. Deflecting several markets from their reforms and entrenching single buyer models around the fundamental idea that the one party that takes no risk (pass thru costs) is somehow always supposed to know best.

In Seoul today — a gorgeous day — perhaps fastest international airport pass thru ever. My uber is electric. Tomorrow we launch a clean energy buyers workshop after months of preparations #ceba #cleanenergybuyers #korea The Lantau Group Love the land of the morning calm. Looking forward to seeing colleagues Soyeon PARK Hansol Shin TING CUI and Minji Kim. But tonight I catch up with old friend Kyu Bang. We worked together way back in 2000 (I would say at the turn of the century but then we would sound even older…) on a proposed KEPCO genco privatisation and the intended transition to a more sophisticated spot wholesale market. California’s fiasco in 2001 sadly put an end to that. Still seems like yesterday though. Winters in Seoul are hard to forget :)

It was a really big deal for the teams at TLG to pull off nine market subscription services, each with market outlooks all within the last year or so. By the way, our China service gains outlook scenarios with the next edition, beginning with Guangdong Province. We had been so busy with bespoke analyses that it took many nights and weekends to formalize our approach and execute the vision for a new subscription product launch. Our service will always be getting better and better. Every release is followed immediately by a take down meeting to highlight what we can improve, what we want to highlight next time, and what issues we anticipate will be most relevant. When I ran cross country in high school, my coach urged us to run a little harder at the crest of each hill -- that's when everyone else slows down. So...there's really no rest after the deadline. We plan ahead while the pain and suffering are fresh. Our teams consist of tightly integrated market modeling expertise within our "DART" (deep analytics) team and local market knowledge within those who have been working in each of these markets for years (usually decades). Our market experts include regulators, industry participants, former market operators, former investors, and weird energy economics nerds -- everyone has decades of experience in these markets. Whilst we ask our clients what they want, we are ever mindful that Apple did not become Apple by asking customers what they want, but by already knowing what to do. Dynamic, responsive, insightful, and timely.

This month we are celebrating that one of our long time outside directors, David Broadstock, has joined our team as full time partner in our deep analytics resources and tools (DART) team. DART is at the core of TLG’s long term strategy. David has been deeply involved in evolving our DART strategy beyond optimisation modelling and into bigger data analysis and more sophisticated analytical techniques. Together we’ve worked on demand forecasting, bidding behavior and bid formation, and AI and other applications. We use different models and tools for different electricity market challenges and opportunities. We spend a significant amount of money each year developing, augmenting, and using different optimisation, statistical, and other tools. We always aim to complement our analytical authenticity with an uncommon degree of local market knowledge and strategic thinking. DART members step into our clients most complex challenges: setting reliability standards, optimising solar Bess hybrids, evaluating market performance and outlooks, analysing or developing bidding strategies, and identifing critical risk and opportunity factors just to name a few. One thing we do not do is pretend to use *long term* nodal price forecast models as if that is somehow a sensible thing to do. Short term, yes. Some degree of regionalisation, for sure. But long term nodal? Yowza. That would take some crystal (meth) ball with a high chance of (assumptions driven) hallucinated outcomes. That’s a better field of play for strategic modelling for which we also have a nice framework. We’ve spent a lifetime analysing complex problems using models and strategic and economically well-grounded frameworks to the point of ensuring we do not over-claim or unwittingly subvert good sense. We don’t press buttons for you. We think.

Some random thoughts: 1) Negative prices, if correctly calculated, are good and fine and are not problems or issues. 2) If there is a REC or Zero Carbon “value” then it will be necessary for that value to carry part of the cost of renewable or zero carbon energy investment, meaning that market wholesale electricity prices will be lower and quite possibly negative more often. 3) The extent of negative prices or very low wholesale prices that do not appear to support investment by themselves is partly a function of the speed and nature of the decarbonisation policy value framework. For example if a renewable portfolio standard is used, then more investment will typically be pulled in than the market might otherwise support. Yet that’s the point of a transition. 4). There is a lot to learn from hydro-thermal systems like New Zealand when it comes to thinking about RE and storage 4). No one knows the “right” speed of transition, but faster than some speed will surely create more problems than the speed is worth. The goldilocks speed must be some reasonable bit faster than natural demand growth or the energy transition will not be materially faster than technological progress can muster. 5) You can think of the energy transition in four stages. The first stage is when we suddenly decide to facilitate some technological shift, like with early feed in tarrifs and such. First mover stuff. Not economic, a bit costly, but motivated by the reality that someone is starting to take it seriously. The second stage is when the technolgy is actually in the money and needs no subsidy and can be added to systems almost without further changes to market design or rules or provisions. The third stage is when something in the marketnstarts to break because the nature of renewable energy is different (rooftop tariff economics is wrong, intermittency, rocof, etc). During the third stage, the focus shifts to ancillary servcies markets, flexibility resources, tariff design, and suddently batteries and other storage resources find opportunities in disrupted and imbalanced markets. The four stage is when the low hanging fruit RE and storage are exhausted. That’s where the cost curve probably tilts up the most (unless we try to go even faster to push out legacy assets and really disrupt things). It is useful to have policies and strategies for each stage and to think of them separately and differently, rather than to lump everything together as if it is just one pile of shit. 6) It’s great that some customers are really keen to zero out their emissions, but there’s a part of that narrative that risks being about taking all the early easier stuff and leaving the later harder stuff for everyone else. Let’s hope (work to ensure) that the narrative is “breaking barriers” and “setting examples” rather than “musical chairs”.

China electricity growth The Lantau Group