Genscape Offers Technology For Wide Access to Data On Each Plant's Output

By NINA SOVICH
DOW JONES NEWSWIRES
December 21, 2004

LONDON -- As power markets across Europe become increasingly liberalized, Genscape is hoping to revolutionize the region's power trading.

The small, closely held technology company has developed a method of measuring the amount of electricity emanating from individual power plants, and it sells that information to power traders. Now Genscape is targeting Europe, where more than €100 billion ($132.9 billion) a year in physically settled electricity is traded.

Wider access to power-output information could lend transparency to power trading across Europe, which would bolster liquidity and stabilize price swings. It also removes exclusive access to money-making information from incumbent utilities and spreads it around the market, making it easier for newcomers to compete.

Deregulation of continental European power and natural-gas markets has been slow since the idea was first floated in the late 1990s. But now Germany is poised to introduce a regulator, while France recently passed legislation that will encourage new electricity companies to compete with state-owned incumbent Electricite de France.

The U.K., the only European country that is fully deregulated, requires power plants to post output on a public Web site to add transparency to the market and prevent severe price fluctuations. Companies in the U.K. have to install complex software and monitoring devices to track their plant-output levels.

If the rest of Europe follows the U.K., Genscape's service could become an easy way to meet transparency regulations.

Genscape -- founded five years ago by energy traders frustrated by the opacity of the U.S. electricity market -- already monitors up to two-thirds of plants in France, the Netherlands and Germany, though it has only a handful of European clients.

"At the moment we're really focusing on Germany, France and the Netherlands," said the Louisville, Ky., company's chief executive officer, Sean O'Leary, who cut his teeth trading power at Southern Co., Atlanta. "Then we might look to Spain. We have to see in which direction the European market deregulates."

In the U.S., Genscape pays people who live near a power plant, such as farmers, to place an electromagnetic monitor under the transmission wires carrying electricity from the plant. The device measures electricity flows, giving an accurate reading of a plant's output, and the information then is sold to power traders.

Among European utilities, the electricity output of nuclear power plants -- by far the biggest producers -- is a secret on par with their security specifications. If a nuclear plant unexpectedly "trips," or goes off-line, it often removes so much electricity from the grid that the price of power can rise by as much as 10% in minutes.

A 662-megawatt unit of British Energy PLC's Heysham 2 nuclear plant tripped on Nov. 26 in the midst of heavy morning electricity trading, and within an hour the price had risen from £27.75 (€40.49 or $53.80) a megawatt-hour to £29.25/MWh, where it stayed for the rest of the day. Only a relatively small amount of power was taken off the U.K. grid, where daily demand is usually about 50,000 MW. But if a 2,000-MW plant trips, it can ruin an entire trading book if a trader has taken the wrong position. If a plant is about to trip, the utility company can inform its own power traders, who then rush to buy spot power. When news of the outage gets out, those traders have locked in cheap power -- and can watch as the price soars.

Genscape's network has begun pulling apart this system in the U.S., where it monitors a third of power plants. It serves 90 utility companies and banks that trade power, which can pay in excess of $200,000 (€150,500) a year for coast-to-coast information.

Genscape's biggest hurdle in Europe is selling the concept to traders skeptical of its technology.

Joe Toussaint, head of power trading at Citigroup Inc., said he raised questions about it, but found the service accurate. "When I was at [energy trading company] Cinergy Corp. we were big fans," he said. "We could see how plants were working across the entire Midwest, and once that information is out there, you pretty much need it."

While the devices need to be placed no less than 50 meters from the transmission lines, they don't require permission from the plant's owners or any sort of hookup to the wires. But Genscape could face another practical problem in Europe. In the U.S., most transmission wires are above ground, making it easy to figure out where to plant the monitor. However, in Europe, most transmission lines are buried.

Genscape wouldn't work in the Netherlands for this reason, said a spokesman at Dutch utility Nuon NV.

Mr. O'Leary, Genscape's CEO, says the technology works with underground lines. "To be honest, if we have no idea where the transmission line is, there can be a problem," he said. "But we can usually find the line."

Some U.K. traders expressed concern that utilities will bring a legal challenge against publishing the data. But lawyers dismissed that idea. "I can't imagine in any democratic country they would prohibit the exchange of this information," said Jonathan Evans, a London-based attorney at Norton Rose. Mr. Evans, a lawyer specializing in the utility industry, doesn't have any connection with Genscape.

In the U.S., the product's legality seems assured. A spokeswoman for the Department of Homeland Security confirmed it had been one of Genscape's clients since the department was created.

"They use it to monitor the grid from Washington," said Mr. O'Leary. "Because at the end of the day, there's really no other way for them to do it."