Romanian electric power grid company, Transelectrica (www.transelectrica.ro), is using @RISK from Palisade (www.palisade.com) to enable it to operate as a commercial organisation as the country’s power industry opens up to competition. Risk analysis with @RISK enables the company to analyse the risks specific to the energy market, as well as the impact that different tariffs, aimed at mitigating these risks, would have on the organisation overall.  This helps to determine the level at which the risk component in the tariff should be set to ‘insure’ Transelectrica against financial repercussions should adverse events occur.

The commercial ‘grid code’ of Romania’s National Regulatory Agency for Energy (ANRE) requires energy companies to undertake risk analysis. The overall aim is to ensure that they can identify the cost of mitigating risk and factor in a source of finance that would cover this.

As a result, Transelectrica had to first identify and measure the market risks to which it was exposed. Dr Ionut Purica, executive director at the Advisory Center for Energy and Environment in Romania, undertook a component of this study.

“@RISK’s parameter control and Monte Carlo simulation capability makes it very straightforward to manage and analyse data, as well as predict future trends. At the same time, the results are easy to understand which ensures their credibility,” explains Dr Purica. “This is reinforced by @RISK’s flexibility – far from being a ‘black box’ that produces un-explained results, it allows users to build and alter the model for their specific individual needs.”

Historical data ‘measuring’ potentially adverse events in terms of the likelihood that they will occur and the consequences if they do are used as the inputs to the @RISK model. Transelectrica can then determine the level at which it needs to set its tariffs. This process is repeated every two to three years due to the inherent volatility of power market.

The use of risk assessment based on @RISK has resulted in a significant improvement in the regulatory framework of the Romanian power market. The coherent risk management activity at Transelectrica also resulted in the grid company attaining a good financial rating, thereby ensuring it could meet the requirements of the EU Directive (114/2008) to protect critical infrastructure in Europe.

Transelectrica was formed in 2000 following the de-merging of the former Romanian Electricity Authority (CONEL) into separate entities (electricity generation, transmission-dispatch and distribution.  The unbundling of the Romania’s power monopoly resulted in the generation of a ‘market’ for electricity for the first time, and with that the introduction of competition. This saw the power companies exposed to market risks, with the consequence being that they had to learn to identify, measure and mitigate them.