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October 19, 2015 Issue

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Cloud Based Predictive Analytics Solution for Buying and Selling Wholesale Electricity at the Market-Clearing Price

 

 

Mark DeSantis

CEO

 

kWantera

www.kwantera.com

 

Interview conducted by:

Lynn Fosse, Senior Editor, CEOCFO Magazine, Published October 19, 2015

 

CEOCFO: Mr. De Santis, what is the vision and concept behind kWantera?

Mr. De Santis: We help people buy, sell, and consume wholesale electricity across North America, Europe and elsewhere. There are hundreds of markets around the world where electricity power is bought and sold every day in an auction format. Essentially, market participants are making daily and hourly decisions to either buy, consume and/or resell. For example, they might be energy companies that are buying it wholesale every day and then reselling it to other customers whether they are industrial, residential or commercial. Then there are different kinds of generators who are offering their power everyday into the market. What all the buyers, sellers and consumers have in common is that because it is auction, there is a clearing price and when you are participating in any kind of auction, you want to get as close to the clearing price as possible and we predict that clearing price. That prediction then becomes the basis for an offer if you are selling or a bid if you are buying or, for consumers who are on things like variable pricing, to find out if the price of electricity is going to be very high tomorrow at noon. For example, if I have variable pricing and I am brewing beer, I may move my production to tomorrow evening when prices are low instead of in the afternoon when prices are high. All of our customers have the same need: know where power prices are going to be today and tomorrow for any given hour and that use that prediction as the basis for a recommendation at to whether, when and how much to buy, sell, and/or consume we provide those recommendations for our customer power decision makers every day across North America and elsewhere.

 

CEOCFO: Why should we use kWantera?

Mr. De Santis: If I am buying electricity, I often am buying it from someone who bought it wholesale and they are selling it to me at retail. However, it is easier and easier to go directly to the wholesale market and can save money. Some of our customers do that and buy their power everyday and thus avoiding going to a power marketer or other supplier. They are avoiding that person in the middle and avoiding the fees associated with buying it retail. Buying like how you would buy anything retail versus wholesale. In the case of the seller, the person on the other side of the transaction, the closer I can get to what I expect the market-clearing price is going to be the better. If I offer a price into the market to sell my electricity and it is above the clearing price, I do not sell any electricity at all that day. I want to make sure that I am still in the market because my price is not above what the expected clearing price is going to be. However, if I set my offer price too low if I am selling than I missed out on profit. So I want an optimum price close to the clearing price. If I am buying I can avoid the charges associated with retail but I am buying it wholesale.

 

CEOCFO: How does kWantera figure out the optimum price?

Mr. De Santis: We use lots of very sophisticated math that is embedded an equally sophisticated software platform to create advanced predictive analytics not unlike the same types of tools that a Google, Netflix, or even Facebook uses every day. In those instances of Google or Facebook, they are taking all this data in on a continuous basis and then they are using how you interact with the computer looking for patterns and then those patterns and then those patterns get transformed into a recommendation. We use the same type of technology where we are looking at patterns in price changes and in things that affect prices like weather, congestion on the grid, and size of the grid. A mass of data that comes off the grid, all of that data buried deep inside of it, are patterns. If you can see the patterns, those patterns can then become fairly reliable basis for a prediction and if you can predict where prices are going to go with any accuracy that becomes the basis for a recommendation to a customer. It is all done with high-end predictive, prescriptive analytics and then those analytics get translated into recommendation every day for all of our customers across North America, Europe and elsewhere.

 

CEOCFO: What is the range of what you offer? Who might want which services and why?

Mr. De Santis: For people who are buying power to consume it, they are not buying it to resell it they are buying it to use it. They could be big industrial firms, process industries so our customers would include steel mills, aluminum plants, breweries, grocery store chains anybody who is using large amounts of power and want to save up to 5% of their gross spending on power. That is one product that we can help them avoid cost associated with buying it from a supplier and thus go directly to the market. That is a product we call DART. That DART product is essentially a recommendation that goes to our customers every single day to purchase a certain amount at a certain price. If you are selling power, these are generators. Most of our seller customers are renewable resources like wind farms and solar farms. These folks are selling power every day and they have to make a choice as to what their offer price is going to be so they can make a maximum amount of money while still participating in the market. They hire us to help them generate the offer price they would then use every day in the market to charge for their electricity, they would charge the price that we generate and again that is a product called DART. It is the same product but for the buyers it is just flipped around. Both of these are web-based services, cloud services so there is no installation of any equipment. The customers do not have to change their behavior in anyway. They are simply able to participate in the market in a new way and they do it all with our recommendations. The third product we offer is called PEEQ. PEEQ is specific to helping people reduce their spending on electricity in consumption. Some customers whether they be individuals, buildings, or factories they have what is called variable pricing with their supplier and what that is the price of electricity changes every hour, every day across the United States. Their supplier has given them the ability to take advantage of those price changes. The challenge is that you have to know where those prices are going to go before you can take advantage of those prices. For example, if you could predict with some accuracy that of electricity was going to be very high on Wednesday afternoon, but it was going to be very low on Thursday night, you would do your dishes on Thursday night not on Wednesday afternoon. You would run your dry or your washer on Thursday night not Wednesday afternoon. What you need to know is where prices are going to go so you can anticipate needing to do that. You can scale it all the way up to big industrial firms and in that world they call it load shifting and that is where our customers are. They use it not unlike anybody would use it in their home except they use it in a factory where they know that prices are going to be very high on a certain day of the week at a certain time of the day. They then choose to consume less electricity at that time and more at another time when prices are going to be very low.

 

CEOCFO: Do many companies take advantage of your products?

Mr. De Santis: It is still under the radar. This is still a new thing. Having said that, the grid has been around for over 100 years. The grid that exists in the United States now is not unlike what Edison would remember it to be. If he were still alive today, he would look at grid and he would recognize about 80% of it. That is less the case now in the last 20 years in the United States and around the world. More and more grids across the United States and around the world are deregulating. Essentially, the old school grid where you had one supplier, one utility, one price that is going away. About two thirds of the United States right now has deregulate over the past 20 years. Essentially, you have competitions so you have multiple suppliers competing for customers, consequently you have a more dynamic market you do not simple have a monopoly. This is a phenomenon that has been sweeping across the world and in order for us to be able to help our customers, we need to be able to participate in a dynamic market. A market where there is still one price and one provider. For example, in the United States, the Deep South and the Great Plain states are not an opportunity for us but in the deregulated markets, which would be two thirds of the U.S. there is plenty of opportunity because the regulators are trying to encourage competition. That competition will ideally result in lower prices. Many people are starting to look at this new market structure and saying hey maybe there is a way I can take advantage of this. However, in order to take advantage of it as a buyer, seller, or consumer, I need tools that I can use that are simple and easy to use and really show me where prices are going to go and tell me what I need to do in response to those price changes. That is what we do.

 

CEOCFO: How do people find kWantera? What do they need to search for to find you?

Mr. De Santis: If they were to search things like power buying, power offers, power bids, real time power markets, power stock markets, or predictive analytics, they would see our name. We would probably at the top of that search. If they combine power stock and predictive analytics, most assuredly we would pop up as number one on that list.

 

CEOCFO: How do you reach out to prospective customers?

Mr. De Santis: We do it in two ways. The first is that we qualify customers by geographic. We want customer in those deregulated markets I spoke of earlier. They have to be of certain size to make economic for us so we typically look for customers with 5 megawatts or more. From that, we essentially make a simple inquiry about how they buy their power or how they sell their power or how they consume it. Usually, in the first 15 minutes we know if this is customer that we can help right now. We will do that directly. We have our own sales force that does that. We also work through partners. General Electric is an investor and partner but we also have other partnerships with large players in the energy space and we will be announcing those very soon.

 

CEOCFO: How long has kWantera been in existence?

Mr. De Santis: I would say about three and a half years. We really started with angel money and some venture money and started small and slowly. We really wanted the market opportunity and we did add customers one at a time. Eventually, we were able to secure additionally investment from General Electric Ventures. That additional capital allowed us to grow and add more customers so it has been a process of building in a deliberate way so that we really knew what we were doing. Our customers depend us on to get them the best price possible. They are very big and the buying, selling, or consuming of their power is very important to them. When we actually went into the market, we did it right. We built up a base of data, which is a very important of our offering. If somebody were to try to do this themselves, they would need large amounts of data and large amounts of history and they would have need to analyze most of that data over two or three years to even begin to do what we do now. We took our time and really made sure we had the right data, we were in the right places and our platform worked.

 

CEOCFO: Is there anything you would like to have in the mix that is not available?

Mr. De Santis: About 60% of the data we use is public data. One of the challenges when you are a company that relies on data and uses mostly public data is that it has to be clean and it has to be consistent so we had to develop technology that would allow us to use that public data. We also purchase some data.


 

 

All of our customers have the same need: know where power prices are going to be today and tomorrow for any given hour and that use that prediction as the basis for a recommendation at to whether, when and how much to buy, sell, and/or consume we provide those recommendations for our customer power decision makers every day across North America and elsewhere.- Mark DeSantis


 

kWantera

www.kwantera.com

 

Mark DeSantis

412.414.5003

mdesantis@kwantera.com


 


 

 



 

 


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