The nodal market takes a complex network of natural gas power plants and other electric power generation facilities and connects them in such a way to allow for maximum efficiency in meeting energy demand based on the area demanding that energy.
By turning on the needed power plant closest to the source of demand it creates less problems with line losses and brings responsibility for meeting the supply nearer the populations demanding it.
The model risk that electricity companies face is directly related with the nodal market and the nodal system is what offers a solution to risk factors common to electric grid operators, natural gas pipeline companies and participants, generation facilities, and even the electricity companies that sell this energy as retail electricity.
For instance, a company that is a natural gas distributor in Texas has developed a complex model to forecast hourly energy demand during winter months in Houston and Dallas Texas. A closely linked power plant uses this same data to forecast demand for their facility.
A part of the model is an input called population. The population of the area of Houston Texas is put in the model as 2,257,926 in 2009 and again is put in the model for 2011 as 2,257,926 without considering a population decline for this year and future years.
The population for the area has declined for the last 2 years and is expected to decline in the future. Due to an incorrect estimate of winter energy demand the power plant buys more natural gas from the natural gas pipeline operator then it needs to create the electricity needed to meet the demand.
The model failed to consider the declining population in Houston and because of this they have way more natural gas than they need to create the needed power. If the model correctly predicted the Houston population decline the power plant facility would not be losing money but would be profitable.
In turn the retail electricity providers buying power from these power plant would be able to buy it cheaper had the power plant not incurred the added expenses due to not forecasting the population of Houston TX correctly.
The power plant must then unload the price they paid for natural gas back in the market at a cheaper price than they paid for it. The power plant very likely may have to shutdown for a time when they expected to remain online because of bad data in their model.
The nodal market assists in making issues like these go away because the power plants closest to Houston TX are creating energy for this area and the pricing is situated locally in very specific points.
The power plant is much more likely to spend more time forecasting and understanding the places nearest to them when creating their forecasts because they are pricing and selling energy to go to the city of Houston and suburban areas around Houston.
More effciencies and considerations will be used when on the nodal system and will have a favorable result in creating power through natural gas which is used during peak electricity demand periods in cities throughout Texas.