Sustainable Energy Solutions and NetZero Initiatives Insights from the CEO of Cquant.io

Ben Hillary

Hello everyone and welcome. My name is Ben Hillary, managing Director of Commodities People. And I'm absolutely delighted to be joined here today by Dave Levan, CEO of Sequant. I'm personally a huge fan of Sequant and everything they do. It really feels like right now they are setting the field in the area, setting the pace in the field of advanced energy and commodity analytics models and forecasting and yeah, absolutely do have the results to prove it. So Dave, welcome.

Dave Levan

Thank you Ben. I appreciate being here.

Ben Hillary

It's a pleasure. Well, first question from where you sit, how have you seen the energy sector evolve in recent years? What's been most striking to you?

Dave Levan

I think the obvious answer is the clean energy transition. Right. I think we're all in the midst of experiencing that. When I first entered the energy industry at about the year 2000 and probably for ten or twelve years after that, I think most of the voices were, this is never going to work. You're never going to get renewables at a certain level to work on our power grids. You're not going to be able to store the energy. And I think really you don't hear much of that anymore. We are well down the road into our clean energy transition. Obviously there are bumps along the way when you make these kinds of transitions but that is really the overriding macro changes that are happening inside of the energy industry and it's really affecting commodities as well. Beyond that, I would say that the advent of a brand new set of market participants. When you see folks like Microsoft and Walmart and Amazon and Ford and GM and BASF and all of these traditional corporate entities, that really energy was simply a line item in their overall budget and it probably never rose to the level of management decision making. And suddenly those entities have very large energy portfolios that they're managing themselves. I think all of those type of market entrants really are coming into our industry and changing the way discussions are being had. And then I would say, lastly, what comes to mind Ben, is that probably a little bit more close to home is the rise of cloud native solutions. Again, when I first started in the energy industry, most people didn't want to hear about cloud native solutions. And now if you're not choosing a cloud native solution, I think somebody's going to come and knock on your door and saying, why are we putting this behind our firewall? Why are we spending millions of dollars to manage this when somebody else could be managing it for us?

Ben Hillary

Very interesting. Cloud was such a dirty word for such a long time. Even now we run some surveys and I'm always quite staggered by the sort of volume of people who still have their reservations and concerns. It's fascinating. Well, Sequant as a company seems to have really grown considerably in the last few years. What's really driving the growth?

Dave Levan

Well, I'll go back to the macro answer from the previous question. Right, so we happen to be sitting right in the middle of the river of this clean energy transition from an analytics perspective. So we, when so many new companies are coming that are either 100% renewable or renewable plus battery storage, or just battery storage, that presents its own set of problems. But I think by far the most complex challenges that are faced inside of the energy industry is companies that are in transition more traditional sources of energy, and they're starting to incorporate clean energy technologies, clean energy contracts, renewable generation, battery storages into their portfolio mix. And that's both a real challenge. The rise of those technologies is both a real challenge for those that operate our grids, but also for folks that are trying to manage their own portfolio and forecast how their portfolio is going to perform. Given the intermittent nature of wind and the sun shining and the complexity of the contracts, example, renewable, PPAs, all of these things are adding so much complexity into the portfolios of our customers that they really require better insight into what's driving the value, and really more importantly, Ben, what's driving the uncertainty and value into their portfolio. And so if you're an executive team and you want to manage the portfolio in the most optimal way, you need an analytic infrastructure that can handle all sorts of different types of assets and contracts and then really calculate how that portfolio is likely to perform and then probably most importantly, how to improve the performance of that portfolio. So the energy transition, again, is creating lots of changes for energy companies, and thankfully, Sequant seems to be kind of well positioned to take advantage of that.

Ben Hillary

Excellent. We've had a few interesting conversations recently, and one of the areas we've spoken about is around model risk. So from your perspective, why should energy and commodity firms be focused on model risk? What is there for them to fear from, bespoke or vended analytic solutions?

Dave Levan

Well, I hate to be a fear monger, but I think this is an important subject. So the question really is, if you're running an energy portfolio, whether you're using a vended analytic infrastructure, or you have some internal teams building analytic models, how do you know really what's in those models? I don't think vendors are absolved from this, nor do I think internal teams are absolved from this. Right? So we've all seen a number of companies go bankrupt or disappear altogether over the last four or five years. And Ben, all of them had analytics. They all had analytics. So the question is, what went wrong? Right? Were the analytics perfect and the management team wasn't fully utilizing them? Were the analytics sort of too niche and not enough about the portfolio performance? A lot of companies still use risk management reporting out of their deal capture platforms, and so they get their VAR and they feel like that box has been checked. And then all of a sudden somebody has a very substantial loss, a very big boo boo, and suddenly that company is going bankrupt, right? So the question is, at a macro level, I think the question is, do companies really know what is going on in the analytic infrastructure? Should they get some outside advice from maybe a major consultancy to come in and review the analytic infrastructure? Right? If they ask me to come in and review the analytic infrastructure, everybody knows we want to place sequent solutions there. So maybe you should go get a third party, right? And then if you have your internal team building all of your solutions, are they really going to self diagnose shortcuts that they're taking? In our opinion, when we see the best practice, what we see is internal quantitative teams managing and validating external vended models because that is where you are utilizing human nature to make sure that the enterprise is safe, right? So all quants like to poke at other quantitative models. So if you have Sequant in there, nothing will make your quantitative team happier than finding an edge case that Sequant hadn't thought about before. We love that because then we get to expand the robustness and the scope of our models and then all of our customers get to enjoy that uplift in capability. And so of course we're coming from one perspective on this, but I think the best practice is to go get a vended analytic infrastructure and have really good internal quantitative teams that are validating and testing that outside infrastructure to make sure it's doing what it's supposed to do.

Ben Hillary

Yeah, excellent. Well, in line with that theme, is there a difference between scenarios and simulations? And I suppose, why does it matter?

Dave Levan

Big differences. I think a lot of people still use straightforward scenario analysis because that's been done in the commodity and energy space for 30 plus years, 50 plus years, whatever the case may be. Let's define terms a little bit. So your scenario analysis traditionally would be, hey, listen, I've got a base case scenario, I've got a deterministic forecast of price or whatever it is. Given that deterministic forecast, I think my portfolio is going to have this result or my asset or my contract is going to yield this result. And then somebody comes by and says, hey, you should really run a couple of scenarios on that. And so maybe you move the price of natural gas up by a dollar or down by a dollar, or maybe you move the forecasted power price, or maybe you move the weather forecast a little bit. But these become one off adjustments to a deterministic base case scenario. I think that was probably 20 years ago, that was probably the best way to do it. But with the rise of Monte Carlo simulation models and modeling frameworks, now it's possible that you can set up all of your risk factors. Okay, hold on. What's a risk factor? David? It's anything that drives value and uncertainty in value into your portfolio. Weather load, different commodity prices, ancillary services basis, relationships, interest rates, congestion. Right. All of these things in the marketplace actually pull on each other. And they're pulling on each other all the time. And they pull on each other differently in January than they do in July. They pull on each other differently on Mondays than they do on Saturdays in July or January. Right. So all of these risk factors are constantly pulling on each other. And in order to represent that in a model, you need to have a very robust simulation framework where you're simulating all of those relationships. And if you have power prices move this way or you have renewable generation move that way, it's moving every other risk factor in the entire framework all the way down to the hourly and sub hourly level going out. Ten years. 20 years. And you're doing thousands upon thousands of simulations and then optimizing and valuing your portfolio to all of those simulation paths. It becomes a really intense quantitative exercise to get those type of simulation frameworks done right. And so that's a first step. Again, what we think is the best practice is to do both. So you have your simulation framework where you're doing all of these thousands upon thousands of simulations, hourly and sub hourly out for many years, and then you go in and you say, okay, that's all well and good, but let's throw a couple of scenarios onto the simulations. Now let's move weather around, now let's move renewable generation around and see how it affects everything in the portfolio. So that's sort of the state of the art, is to actually incorporate both into your analysis.

Ben Hillary

Yeah. Excellent. With so much change, with so much going on, with so many opportunities.

Dave Levan

With.

Ben Hillary

The markets just evolving so rapidly, where do you see Sequant in three years from now? What's on the horizon for Sequant?

Dave Levan

That's a good question. So many things and a couple of things I probably can't mention, but what we're invested in at the top level is taking the friction out of an energy or commodity company's ability to manage their portfolio. So we're completely cloud native, right? So they can stand up in a matter of hours really instantaneously, and they can get their data into that platform in a matter of weeks. We've got really good customer service to help people along the way. So we're just trying to make this easier for people, and we're never going to stop doing that. But I think what you're going to see from Sequant is a plethora of new products coming out, and they're going to be model generated products, new data for the industry that's coming out of our models. We're going to productize some of that data and make it available. So there are people that may not want to use SQL, but may want to use our simulation data, for example. So those are the type of changes that we're thinking about. And then I think we believe there's a place for AI and ML in traditional modeling frameworks. But that's such a buzword today and I think, I personally think some people are going down the wrong path. You're not going to be talking to Siri and saying, siri optimized my portfolio and it's going to happen. Right. So there's a combination of traditional and new modeling techniques that we're working on and I think other people are working on them too. And so the industry should expect those combination of methodologies to be coming out over the next year or two from us. And then it's really, I would say, the speed of analytics. People have gotten used to Ben kicking off a run at 10:00 P.m. And being done by 04:00 A.m. And having all of your portfolio analytics during the day, done the night before. What we're seeing the marketplace demand is instantaneous analytics. So ongoing real time analytics that leverage all of the work that was done during the evening to constantly update reports. And I think that kind of real time analysis is where the energy industry is headed and certainly we're headed there. And then finally, what comes to mind is building our global presence. We're in every market in the United States and North America right now. As you know, we've been expanding our presence in Europe and we have some designs to expand globally as excellent, excellent.

Ben Hillary

And finally, at the upcoming energy trading weeks in London and Houston, sequant are going to be providing a number of really interesting case studies and panel discussions on a range of subjects including forecasting and optimization, analytic innovations for the transition, managing risk around renewable assets, and a number of other subjects. Could you provide, I suppose, a sneak peek of what you'll be covering?

Dave Levan

Sure, absolutely. At Sequant, we definitely like to put our analysts front and center. They're the ones that are either developing these models or conveying the importance of these certain methodologies to the. So, you know, we're lucky. In the London event at the end of September, we're going to have our director of analytics for Europe, Pierre Levon, doing both a panel and a more detailed presentation on forecasting and optimization methodologies, analytic innovations that we're working on, and where Sequant is pushing the envelope in terms of providing more and more useful tools to the energy industry. And then in October for the Energy Trading Week in Houston, we're going to have our VP of Analytics, Brock Mussowski, talking there about managing risk on renewable portfolios, but also portfolios that are in transition, bringing on more renewable portfolios. And increasingly we're being asked about hedge optimization and different contract structures and how to employ different contract structures to properly hedge complex portfolios. Brock will be spending a fair amount of time on those. I think, you know, we love working with commodities people. We think you guys have the best events in the energy and commodities space. Thank you. The particular subjects that our analysts are going to be presenting to your audience, hopefully they'll be very useful.

Ben Hillary

Yeah, no, that's excellent. I'm really looking forward to that. I always do enjoy Brock's presentations immensely. And yeah, look forward to hearing from Pierre also. No, that's brilliant. Well, that brings us to the end. So many thanks, David, for a fascinating conversation and yeah, I will look forward to seeing you on this side of the pond in September. And on your side of the pond in October.

Dave Levan

Thank you, Ben. Thank you.