European power markets are going through a period of profound transformation. The growth of renewables and depressed power demand are combining to put pressure on thermal plant revenues. The regulatory framework is evolving with reforms of renewables support mechanisms leading to greater merchant risk exposure, and the introduction of capacity mechanisms. As a result, electric utilities, generators, and traders face a new set of forecasting problems. To respond to these challenges, FTI Consulting and its subsidiary, Compass Lexecon have developed a modelling suite integrating the main elements of the electricity market (power market, ancillary services and capacity) and main generator decisions (short-term dispatch and plant investment and retirement).
Our Service Offerings
Energy & Capacity Price Forecasting
FTI Consulting and its subsidiary, Compass Lexecon have experts which regularly use forward-looking models of European power markets to provide clients with a market outlook on the development of market fundamentals and its impact on power prices, including the hourly price structure. In addition, because of recent concerns about the existing power supply meeting demand in Europe, capacity markets have been developed in a number of European countries to ensure that supply will always be available. Our Strategy and Regulatory specialists and renowned economists create models to simulate capacity market prices as well as to forecast future pricing based on likely scenarios. Our clients — governments, utilities, power consumers and other market participants — have benefited directly from our energy and capacity pricing modelling expertise.
Asset valuation involves valuing the power market assets on the basis of all the available due diligence and all the estimations of forward future cash flows allowing one to value an asset. And the future cash flow is usually the function of what the regulations and market conditions are going to be, as well as other things such as future cost profile. For public and private companies in the wholesale energy business, FTI Consulting and its subsidiary, Compass Lexecon have experts that have performed asset valuations for numerous purposes, including fair market value, fairness opinions, purchase price allocations, impairment testing, dispute resolution, transaction analysis and pricing, and restructuring.
Modelling Capability Development
Market players are often interested in developing their in-house modelling capabilities to be able to inform their business cases independently. To meet these requirements FTI Consulting and its subsidiary, Compass Lexecon’s Electricity Market Modelling experts advise clients both on the general architecture of the power market and specific modelling approaches.
Higher oil prices or significantly reduced nuclear dependence, as examples, will have a ripple effect across the energy markets — electricity, natural gas, renewables, etc. To determine how much of an effect, the Strategy and Regulatory specialists and renowned economists at FTI Consulting and its subsidiary, Compass Lexecon develop scenarios based on key market drivers to determine how energy market fundamentals and regulation might evolve in the future. We then use the scenarios to create market models where we evaluate what we think electricity prices or gas prices might be in future years.
Downside Risk Assessment
FTI Consulting and its subsidiary, Compass Lexecon help clients and their advisers assess and mitigate strategic, financial, and operational risks within various business functions and across the enterprise. In our performance of strategic financial assessment and risk analysis, we identify low probability but high impact events that might conceivably occur. We then develop models that explore and evaluate the risks and consequences of such events and the steps our client might consider to mitigate the possible downside risk. Clients often use this modelling procedure to identify and put in place safeguards today that would mitigate downside of risk should a major event occur.
Regulation Impact Assessment
The European electricity markets are constantly evolving and new regulations and market rules are regularly introduced by governments, regulators and market and system operators. FTI Consulting and its subsidiary, Compass Lexecon experts use modelling tools to help policy makers, as well as utilities to quantify the impact of regulation and market design proposals on the socioeconomic welfare and to understand the risks and opportunities they present to individual market participants.
Competition Analysis, Regulatory & Commercial Disputes
Analyses of competition in power markets, competitive behaviour in power markets, regulatory and commercial disputes often require to re-creating the historical market outcomes that would occur and an alternative behaviour of market participant or participants. In a number of competition cases and regulatory and commercial disputes, FTI Consulting and its subsidiary, Compass Lexecon experts have identified the counterfactual benchmark of market participants’ behaviour and applyed the power market models to assess the impact of actual behaviour on the market outcomes, profitability of market participants and social benefit.