Energy trading and risk management (ETRM) is software that records each energy trade and shows how much a trader could lose if prices move. A trade is an agreement to buy or sell power, gas or oil at a set price. The software also tracks delivery, invoices and payments. In India, a company that buys power to resell it between states needs a trading licence from the Central Electricity Regulatory Commission. For trading within one state, that state's electricity regulatory commission gives the licence.
The key idea is risk. Take, for example, a trader who buys 500 MW of power for four evening hours tomorrow at ₹6 a unit and plans to sell it later. That is 2,000 MWh, or 20 lakh units, so the purchase costs ₹1.2 crore. If the market price falls to ₹4, the power is worth only ₹80 lakh, and the trader loses ₹40 lakh. The software values every trade at today's market price each day. This is called marking to market. It then reports the total position and an estimate of the largest likely loss. A limit is set for each trader, and the system warns the desk when a limit is near.
Without it, a desk keeps trades in spreadsheets. Then nobody can see the total position at any moment, and a limit can be crossed unnoticed.
Many trades are derivatives, which are contracts whose value follows a price. They can be sent to a clearing house, which guarantees that the trade is honoured.
Prices come from commodity data management and scenarios from power market modelling. Batteries, called battery energy storage systems, add a new task. On Indian exchanges, the price of power can change every 15 minutes, and in some other countries every 5 minutes. So algorithms now decide when a battery should charge and when it should sell, and they bid its power automatically. Many small batteries and rooftop systems can be bid together as a virtual power plant. This is dynamic pricing in the power market.