Online energy trading is on fire. And software makers — armed with products to help companies manage their risk and keep track of their trades — are happily stoking the flames.
Last week, Enron, the biggest energy trader on the planet, reported that the amount of electricity traded in the first quarter surged by 109 percent over the prior quarter, and natural gas volumes jumped by 55 percent. At TradeSpark, a competing energy exchange, electricity volumes jumped 17 percent while natural gas volumes rose 90 percent over the prior quarter.
Earlier this month, Forrester Research estimated online wholesale energy trading will reach $3.6 trillion by 2005. Although that prediction may a bit optimistic, energy-focused software providers are seeing unprecedented demand.
Market deregulation is driving much of the need. California, New York, Texas and other states are opening their electricity markets to competition, and regulated utilities, power producers and independent system operators all need software systems that can track their risk, credit positions, profits and losses in real-time.
"Change creates need and this industry is going through changes that are unprecedented," said William Betts, senior vice president of sales at Altra Energy Technologies, a Houston online energy exchange. Betts and others estimate the market for energy trading software may be worth up to $5 billion within the next few years.
This month, Altra said it will provide power scheduling software to Californias Department of Water Resources. On April 2, privately held Kiodex announced its Web-enabled risk management software will be offered through EnronOnline.
This week, Lodestar, which makes Web-capable billing and back-office management software, will announce a deal with retail energy company Shell Energy, a unit of Shell Oil.
"As each electricity market deregulates, all of the distribution companies in those markets will have to buy software to manage and handle the transmission of electricity and the billing problems that come with deregulation," said Dan Crimmins, product manager at Lodestar.
As more companies trade electricity, gas and other commodities, they will need sophisticated risk management software. "If they dont adequately assess their risk and manage their portfolio, in a few weeks, they could be out of business," said David Stoner, president and CEO of Caminus, an energy trading and risk management specialist.