Navigating the energy transition safely: An optimal approach for optimal energy procurement
Summary
The world is at a pivotal moment in its energy journey. Electricity demand is rising across the globe as industries, heating and transportation electrify, urbanization accelerates, and digital transformation drives consumption upwards. At the same time, governments and businesses are facing mounting pressure to meet ambitious climate targets that call for a drastic reduction in carbon emissions. The growing demand for electricity, combined with the urgent need for decarbonization, presents a significant challenge for both government and private sector leaders.
A mayor challenge for industrial energy consumers
Industrial consumers face the dual challenge of securing their future electricity needs at a competitive cost while adhering to environmental regulation and targets, which requires making highly complex decisions under uncertainty in market conditions, applicable regulations and increasing geopolitical risks. To make informed decisions, a large number of alternatives covering various renewable sources such as solar, wind, and hydroelectric power as well as storage facilities need to be considered in an integrated framework with possible power purchase agreements, to identify the most efficient options.
Source: Own design.
These decisions have traditionally been based on either internal spreadsheet-based models or external consulting services. While excel-based models can be flexible, they lack the sophistication to accurately assess the impact of variable factors like the volatility of renewables, the optimal use of storage, fluctuating energy prices and changing regulations. Moreover, they require expert knowledge and are time-consuming to develop and maintain. Similarly, external consultants may provide valuable insights by developing customized energy procurement strategies, but their services often come with high costs and long lead times.
In today’s fast-paced, rapidly changing energy landscape, with increasingly volatile energy prices and continuously evolving climate regulation, industrial companies need a more agile and accurate data-driven approach that can provide clear, actionable insights to guide decision making.
Hermes: A cloud-based AI solution for industrial decarbonization planning
To facilitate data-driven decision making in the energy transition, Pharoes has developed Hermes, a decision support solution for renewable energy adoption, that balances sustainability and profitability. It includes all the features required to represent real-world energy systems, markets, and environmental policies. Moreover, by accurately considering the volatility of renewables, it can evaluate optimal storage operation and market participation, which enables making efficient investment decisions.
Hermes generates optimal procurement plans considering future market dynamics and environmental policies with a state-of-the-art optimization engine. It compares the Net Present Value (NPV) of all different energy procurement alternatives and selects the most suitable combination.
Key features of Hermes:
• Comprehensive procurement modeling:
Hermes compares multiple procurement alternatives, including the development of renewable energy generation projects (solar, wind, hydro, etc.), the use of energy storage systems (BESS, pump, etc.), and the purchasing of energy through Power Purchase Agreements (PPAs) or Day-Ahead-Markets. The alternatives are characterized by detailed technical and financial specifications and are easily customizable to fit the needs of the user.
• Dynamic storage optimization and market participation:
Renewable energy sources are inherently intermittent, meaning that storage solutions play a crucial role in stabilizing the energy supply. Hermes optimizes storage system operation, to ensure efficient energy market participation that maximizes the value of renewable energy assets. Since energy prices fluctuate constantly, especially in markets with high renewable energy penetration, taking this volatility into account is essential to assess the performance under various market conditions.
• Climatic regulation characterization:
Climatic regulations, including RES targets and CO2 taxes, are integrated into the modeling process. This allows for assessing the financial impact of various regulatory policies on the energy procurement strategy and making decisions that are both compliant and cost-efficient.
• Minimal adoption cost and effort:
A significant advantage of Hermes is its cloud-based deployment model. The tool requires minimal upfront costs, making it accessible to a wide range of industrial consumers as well as consultants. It is fully available on our web platform, allowing users to access its powerful features from anywhere, at any time. The cloud offers large computational capacity and robust data security through redundancy backups, encryption and multifactor authentication.
• Proven results:
Hermes has demonstrated economic efficiency gains of 8.5% on renewable projects; a direct result of accurately considering the intermittent nature of renewables and its impact on electricity prices. In this study, the client, a global renewable power developer, was initially considering the development of a high density solar photovoltaic project with a comparatively larger battery storage to maximize ancillary service and capacity remuneration revenues. Hermes provided clear insights proposing the purchase of a larger field to increase solar field yield. This required increased capital but was more than compensated for by the increased generation. It additionally recommended the use of more compact battery storage, which though offered 20% lower revenues on the electricity market allowed 25% TOTEX savings, transforming a loss making project into a profitable one. The initial concept proposed by the client delivered financial value below the costs yielding a negative NPV, the proposed changes made the project profitable.
Why now is the time for smarter energy procurement
The transition to cleaner energy is no longer a distant goal — it’s a present reality that demands immediate action. Industrial consumers need to make strategic decisions today to ensure their energy strategies are not only aligned with sustainability targets but are also financially viable in the long term. By incorporating advanced tools like Hermes into their decision-making processes, companies can optimize their energy procurement strategies and minimize the financial risks associated.
Furthermore, as governments around the world ramp up their climate regulations, the financial impact can be significant. CO2 taxes and other regulatory mechanisms can increase the cost of traditional energy procurement options, making the transition to renewable energy not just a sustainable choice from an environmental perspective, but also a profitable one financially.
Hermes provides industrial consumers with a competitive edge in navigating complex decisions, ensuring they are well-positioned for the changing energy landscape, making financially sound decisions while also making a positive contribution to global sustainability efforts.
About the authors
This article was written by Edvin Martinson, a Solution Analyst of Pharoes and Diego Luca de Tena, Managing Director, both based in Madrid.
Exhibit 1: System overview of an industrial consumer with own infrastructure

Source: Own analysis based on Hermes results
Exhibit 2: Project cost savings achieved by Hermes, Mn EUR

Source: Own analysis based on Hermes results
Acknowledgments
We wish to thank the Centre for the Development of Industrial Technology, the United States Agency for International Development and the European Union for their financial support for the development of this technology: