Company Presentation

Transcription

1 Company Presentation

2 Contents General information Page Oil trading Page 16 - RWE Trading as an operating company 2 within the RWE Group - RWE Trading is RWE s interface with the market 3 - The trading floor as the central 4 information platform for wholesale market issues - RWE s power sales portfolio - Best in class our history and our future - RWE Trading key figures (I) - RWE Trading key figures (II) - RWE Trading organisation Coal trading - RWE Trading s role in the world of coal trading - Main drivers of the coal trading market and the respective challenges for RWE s coal trading business Emissions trading Power trading - Facts and figures for RWE Trading Gas trading - Cooperation between RWE Trading and RWE Gas Midstream Our risk management - Commodity Risk Governance Structure - Risk philosophy - Backup

3 RWE Trading as an operating company within the RWE Group RWE AG (Group Centre) RWE Power RWE Dea RWE Gas Midstream RWE Trading RWE Energy RWE npower RWE Systems Upstream (Production) Electricity generation Gas and oil production Gas Midstream (commercial optimisation of procurement, transport, storage) Energy trading Supraregional and regional electricity and gas networks Electricity and gas supply Continental Europe RWE Power RWE Dea RWE Gas Midstream RWE Trading RWE Energy UK RWE npower RWE npower 2

4 RWE Trading is RWE s interface with the energy wholesale markets RWE Trading implements the marketdefined benchmarks for the RWE Group s generation and supply activities. RWE traders not only deal with commodities such as power, gas, coal and oil, they also actively trade physical and financial derivatives as well as environmental certificates. The asset the based commodity positions of RWE Group are sold to or bought from RWE Trading at wholesale market prices. We consolidate these positions through proprietary trading. This hedging helps us to manage the risks of having very large open positions in each of the physical commodity markets. This business model unites the natural focus on obtaining the best potential value from the RWE Group s physical assets with the benefits of financial (proprietary) trading. Retail customers/ industrial customers sell RWE Energy/ npower buy Trading customers STPM* RWE Trading buy/sell Proprietary trading RWE Power/ RWE npower sell Market * STPM = Short-term position management 3

5 The trading floor as the central information platform for wholesale market issues Wholesale markets Dealers Markets Producers Grid operators Schedule Management Commodity trading STPM Sales management Production RWE Power RWE npower Load distribution Analysis RWE Energy RWE npower sales Back office Credit management Risk controlling Support functions Risk management 4

6 RWE s power sales portfolio The wholesale markets set the benchmark RWE places its trust in the liquidity and reliability of the wholesale markets and sells a large part of its production directly into this pan-european market TWh Wholesale markets 56.5% Sales organisations 43.5% 92.8 TWh Of the TWh produced by its own power plants in 2006, the RWE Group sold 92.8 TWh on the wholesale markets and 71.5 TWh through sales organisations. 5

7 Best in class our history and our future Hugo Stinnes Purely speculative trading Provider of market information/ route to the wholesale markets Best practice blueprint for risk control Integrated wholesale risk pool and portfolio manager Joint shortterm trading and asset dispatch function STPM* 2005 ff. We contribute to the commercial success of the RWE Group by applying our combined knowledge and skills in the best interests of the Group s assets. We continue to expand our proprietary trading activities based on fundamental analysis of the drivers of supply and demand, and therefore prices. We continue to be a driver of liquidity in the power, gas, coal, oil and CO 2 markets. We continue to be the preferred long-term partner for sustainable success in European energy markets, capable of delivering innovative energy commodity risk management solutions. * Short-term position management 6

8 RWE Trading key figures (I) RWE Trading is one of the largest and most important European energy commodity traders. With a workforce of over 500 employees, RWE Trading operates trading floors in Essen, Swindon and London, as well as representative and agency offices across Europe. RWE Trading is active on leading international exchanges. Besides our activities in Europe, RWE Trading actively trades on the NYMEX and the global commodity markets. Oil: USA, Europe, Asia, Middle East Coal: ARA, Newcastle, Richards Bay RWE Trading currently forms the backbone of the European OTC power and gas trading business. RWE Trading in Europe Trading floor Representative/agency office Traded markets Energy exchange Oslo London Amsterdam Brussels Swindon Leipzig Warsaw Essen Prague Kosice Graz Paris Ljubljana Bucharest Madrid 7

9 RWE Trading key figures (II) Management accounts of RWE Trading 2006 RWE Trading employees at year end** Performance gross margin m Performance EBITDA m Risk capital m RORAC 98.2 % * Since 2005, RWE Trading profits have been reported externally, together with the figures from the RWE Power generation business, to reflect a higher degree of integration with the asset business of the RWE Group. RWE Trading measures its performance on a pure mark-to-market basis, whereas RWE discloses these results following the legal structure and according to the applicant rules of IAS/IFRIC * Figures for 2004 incorporate Innogy s trading and asset management team after RWE takeover. ** Year-end figures for RWE Trading GmbH, including apprentices. 8

10 RWE Trading organisation Chief Executive Officer and Member of the Group Business Committee Peter Terium Managing Director and Chief Financial Officer (CFO) Dr Bernhard Günther Managing Director and Chief Commercial Officer (CCO) Dr Peter Kreuzberg Lobbying and Regulations (Global) Legal & Communications (Global) Strategy Application & Asset Interface (Global) Risk (Global) Human Resources (Global) Finance & Reporting (Global) Project Controlling & Valuation Back Office, IT & Business Change Management (Global) Integration & Organisation Power Trading (Continental Europe) Short-Term Position Management (Continental Europe) Power Trading (UK) Short-Term Position Management (UK) Gas Trading (all Europe) Global Commodities Trading Global Commodities Marketing & Logistics Carbon Trading Analysis for Global & Pan- European Commodities Structure & Valuation (Global) 9

11 Power trading

12 RWE Trading facts and figures Our power trading volumes have seen consistent growth in recent years. This is just one indication of RWE Trading s successful market approach. The slight decline in 2006 was due to politically influenced market distortions in France and Spain. RWE Trading: power trading volumes Wherewetradepower TWh 1,400 1,200 Trend 1, ,055 1,316 1,315 1, Power trading CE and power trading UK 11

13 RWE Trading has a multitude of trading partners The German wholesale energy market is not a members-only club. During the first eight months of 2006, only 6% of RWE Trading s total trading volume had been generated by energy trade with the other three major utilities operating in Germany. The market is internationally oriented and except for the industrial customers which are still abstaining intersectoral. Industry 0.1% Municipal utilities 3.7% German utilities 6.3% Spot markets 14.1% Banks 16.2% European utility companies (excl. Germany) 48.8% Oil companies 5.2% Proprietary traders 5.2% * e.on, Vattenfall, ENBW 12

14 Gas trading

15 Gas trading The growth in gas trading further strengthens the RWE Group s position in the natural gas markets. Trading volumes for natural gas have been stable in recent years and are expected to rise as the Continental European gas markets open and RWE s gas assets and trading activities are further integrated. By 2006, gas trading volumes for RWE Trading in Continental Europe and the UK were around 900 TWh. European gas trading hubs 14

16 Cooperation between RWE Trading and RWE Gas Midstream RWE Gas Midstream will further strengthen RWE Group s competitiveness in the increasingly liberalised European gas market. RWE Gas Midstream bundles the nonregulated areas of the RWE Group s gas business (purchase, transport and storage capacity rights). RWE Trading and RWE Gas Midstream cooperate closely with each other in the gas business. RWE Trading will continue to be an active trader at liquid gas trading points. This business is being integrated by RWE Gas Midstream as part of the commercial optimisation of the entire gas portfolio of the RWE Group, ranging from short-to long-term procurement and supply commitments. 15

17 Oil trading

18 Oil trading RWE Trading s business model for oil covers global physical commodities and derivatives trading as well as risk management. Group-wide synergies include: Marketing of RWE Dea equity crude (among others North Sea, Dubai, Egypt) Risk management and hedging of RWE Dea s physical upstream position Procurement of fuel oil for RWE power plants Global derivative expertise for hedging strategies of oil-indexed fuels (e.g. gas) RWE Trading carries out spread transactions between oil products and locations based on price differentials. 17

19 Coal trading

20 RWE Trading s role in the world of coal trading As a significant player in the international physical coal and freight trading markets, RWE Trading offers a range of products, from basic supply and trading deals to advanced integrated risk management and marketing solutions. The value of these activities is enhanced by our active involvement in coal and freight financial derivatives. RWE Trading is the RWE Group s interface with the international coal trading market: Physical: >20 million tonnes of coal are burnt (directly/indirectly) per year, including an increasing amount of coal from abroad Derivatives: >100 million tonnes of derivatives per year 19

21 Main drivers of coal trading market and the challenges for RWE s coal trading business Rising demand from China and India and the renaissance of coal-fired power generation in Europe. Significant increases in ocean freight rates and coal export prices. Larger trade flows and higher price volatility, creating a vibrant market with a very strong international orientation. Thanks to extensive market knowledge and its team of dedicated experts, RWE Trading is well positioned to manage the risks presented by a changing market and to offer made-to-measure supply solutions to our customers. We source from and supply to a number of different countries and suppliers globally, including long-term basis contracts. We will also play an active role as a market maker for new and attractive products. 20

22 Emissions trading

23 Emissions trading Optimisation of power, gas and other fuel positions via emissions trading is a necessary part of European energy markets. The European Trading System (ETS) combines market forces with politically imposed caps on emissions. RWE Trading has been a successful participant from the very beginning and is a leading contributor to the rapid development of this market. We are ready to meet the complex challenges of the ETS market, by handling dayto-day fluctuations, and by having the tools and experience to hedge long-term risks. For example, we actively support the further development of trading master agreements. The ETS will continue to be an important futures market. Although there is a high degree of volatility in daily trading, there is a also strong long-term element. The CO 2 market provides decision makers with valuable input when it comes to planning long-term investments in generation assets/power plants. 22

24 Our risk management

25 Commodity risk governance structure RWE Group Center RWE AG Executive Board Group Risk Management Group Business Committee Market Committee Risk Committee New Product Team Market Assessment Team Asset Book Committee Gas & Oil Asset Book Committee Continent Asset Book Committee UK Carbon Working Group RWE Energy RWE Power RWE Gas Midstream RWE Trading RWE npower Portfolio management Asset management Portfolio management Trading desks Portfolio management Asset interface Asset management Short-term position management (continent) Short-term position management (UK) Risk control Risk control Risk control Risk control Risk control 24

26 Risk philosophy The Chairman of the Board is the chief risk controller. Professional risk management forms the basis of our successful energy trading business. Our strict risk management philosophy is implemented through the following structures and measures: Best-in-class processes for trading, risk controlling and back office/operations based on banking industry standards Integrated management of all trading activities, and independent evaluation and supervision of market and credit risks using an inter-organisational state-of-the-art trading and risk management system Organisational separation of front office and support and control functions (dual control principle) Transactions on the basis of international master agreements (ISDA, EFET, etc.) 25

27 Backup

28 Contents of Backup Page Page Power trading 28 Coal trading 47 - RWE Trading = the Group s wholesale risk pool and portfolio manager in Germany, Continental Europe 31 - Coal prices (US$/t) - Coal prices and freight prices (US$/t) and the UK - Major fundamental factors influencing power prices on the wholesale market - Forward price development in Europe - Power trading volumes in Continental Europe: increasing liquidity - Wholesale markets work: development of trading volumes in Germany as of Emissions trading - Environmental trading - Environmental trading Price development (EUA 06) - Environmental trading Price development (EUA 07) - Environmental trading Price development (EUA 08)

29 Power trading

30 Deregulation Deregulation has separated the different levels of the value-chain for this reason the power price is being built on different markets. Competition Regulation of network access and network access charges (Federal Network Agency) Competition Generation Exchange trading OTC Transmission Distribution Sales & services Taxes & duties Retail price 29

31 The power wholesale market Trading Wholesale market OTC market (e-otc Germany 2006: 1,680 TWh) OTC clearing EEX 2006: 642 TWh Exchange (EEX 2006: 1,133 TWh) Spot market Futures market Spot market (EEX 2006: 88.7 TWh) Future market (EEX 2006: 1,044 TWh) Physical Forwards/ options/ structured products Settlement: physical and financial Physical Futures/ options Settlement: mainly financial 30

32 RWE Trading = the Group s wholesale risk pool and portfolio manager in Germany, Continental Europe Embedded lignite supply Buys gas Long-term gas supply contracts Emissions trading World coal market Wholesale power markets RWE Power RWE Trading RWE Energy Industrial Long-term asset management Hedges with standard instruments Internal market maker as regards trade for load profiles/shape Hedges fuels and CO 2 for power sold Sells standard forward products Buys CO 2 certificates Buys standard forward products from RWE Power Manages risk within defined limits Internal market maker for fuels and CO 2 Buys power Sells power Sells to customers Buys back to back Locks in sales margin Bears volume and credit risk Sells power SMEs Municipalities Residential Short-term/spot market (< 2 months) Transfer of generation capacity incl. fuels and CO 2 Buys and sells Day-ahead position (hourly profile) RWE STPM* Cont Manages RWE s short-term position (< 2 months) on the continent, including power plant dispatch, fuels and retail load Day-ahead position (hourly profile) Sells capacity and services Balancing market * Short-term position management 31

33 and the UK Emissions trading World coal market Wholesale gas market Buys and sells Wholesale power market RWE npower Generation RWE Trading RWE npower Retail Long-term asset management Hedges CO 2 for capability not yet transferred to Trading Transfer of capability incl. CO 2 Buys CO 2 certificates Buys capability from RWE npower Manages the spread option within defined limits Internal market maker for power, fuels and CO 2 Buys power Sells power Sells to customers Buys back to back Locks in sales margin Bears volume and credit risk Sells power Industrial SMEs Residential Option exercise RWE STPM* UK Load profile Spot market (< 1 week) Buys and sells When an option is exercised, STPM* manages generation capability until production (< 1 week) Manages optionality of plants (dispatch including fuels) and retail load Sells capacity and services Balancing market * Short-term position management 32

34 Major fundamental factors influencing power prices on the wholesale market Rainfall CO 2 price Gas price Oil price Coal price Uranium price Storage and river power plant Thermic power plant Revisions Wind Windturbines Power price Power plants/ networks Technical failures Temperature Illumination school holidays Climatisation/ electric heating Public holidays Long-term influences: Changes on basis of market changes Political decisions Capacity changes Clouds Brightness Time of day Futures markets reflect traders expectations in terms of future fundamental influence factors 33

35 Marginal power plant principle: decisive for price formation on the wholesale market The daily demand on the EEX is countered by a multitude of offers for electricity from different generation sources. Each power plant type (nuclear, gas, coal, etc.) has marginal costs for its utilisation. Marginal costs are mainly determined by variable costs for fuels (incl. CO 2 ) and operating resources - costs that are incurred during power plant operation and have to be earned as a minimum. Starting with the most favourable offer, power plants are successively called up on the EEX until demand is met. The offer price of the last power plant needed to meet this demand ( marginal power plant ) determines the market price for all other power plants. The power price thus results from the intersection of supply and demand. That is why in case of high demand prices will rather be determined by power plants with relatively high marginal costs whereas in case of low demand they will rather be determined by lower marginal cost power plants. /MWh K1 Power demand Market price K2 K3 K4 K5 Power supply in MW (graded by offer prices) Full costs variable costs + capital costs Offer price Short-term variable costs per power plant type (fuel + operating resources) + CO 2 34

36 Forward price development in Europe Marked price increase throughout Europe in 2005 and Since mid-2006, stable price level for Germany at around 55/MWh Deutschland Germany Frankreich Netherlands Niederlande France Skandinavien Scandinavia /MWh

37 Price increase for 2008 since 2005 Germany shows the lowest price increase by European comparison at 48%. 190% 180% 170% 160% Deutschland Germany Frankreich Netherlands Niederlande France Skandinavien Scandinavia 150% 140% 130% 120% 110% 100% 90% /MWh

38 Spot market volume at important european markets EEX EXAA Powernext APX Nordpool 37 Jan 03 Apr 03 Jul 03 Okt 03 Jan 04 Apr 04 Jul 04 Okt 04 Jan 05 Apr 05 Jul 05 Okt 05 Jan 06 Apr 06 Jul 06 Okt 06 Jan 07 Apr 07 Jul 07 TWh Month

39 Futures market volume at important european markets Jan 03 Apr 03 Jul 03 Okt 03 Jan 04 Apr 04 Jul 04 Okt 04 Jan 05 Apr 05 Jul 05 Okt 05 Jan 06 Apr 06 Jul 06 Okt 06 Jan 07 Apr 07 Jul 07 EEX Powernext Endex Nordpool. TWh Month

40 Jan 07 Apr 07 Jul 07 EEX market volume Okt 06 Jul 06 EEX Clearing EEX Futures EEX Spot Volume (TWh) Jan 04 Apr 04 Jul 04 Okt 04 Jan 05 Apr 05 Jul 05 Okt 05 Jan 06 Apr 06 Month

41 Power trading volumes in Continental Europe: increasing liquidity* 6,000,000,000 Spain 5,000,000,000 4,000,000,000 3,000,000,000 Scandinavia Netherlands OTC Netherlands France OTC France Germany OTC 2,000,000,000 Germany 1,000,000, * In bn kwh; measurable trading volume at exchanges and via electronic broker platforms OTC 40

42 Wholesale markets work: development of trading volumes in Germany as of 2002 Since deregulation there has been a continual increase in the volumes traded on the German wholesale market e-otc Forwards TWh Clearing Futures Spot Note: this graph is based on measurable trading volumes and does not include bilateral voice OTC trading. Market analysts estimate the total trading volume including non-measurable, anonymous OTC trading to be around double the volumes shown here. Source: EEX, RWE Trading data, 2006e = estimate /based on data available up to October

43 European network effectively limits the market position of individual producers Relevant production for Germany is 192 GW. Share of the big four : 43% 7% Vattenfall (13 GW) 7% EnBW (13 GW) 12% e.on (23 GW) 17% Others (33 GW) 30% Cross-border capacities (58 GW) Conclusion of the EU sector inquiry regarding networking*: Pivotal Supplier Index (PSI) for Germany is small 17% RWE (32 GW) 10% Inst. wind power plants (20 GW) F BE E NL % 97.2% 8.2% 0.0% DE 0.0% UK 0.0% * Sources: EU Sector Inquiry 2005/2006, study by London Economics and Global Energy Decisions 42

44 Europe s power market is connected Rising exports are a sign of healthy competition: electric power, too, tries to find the highest available price. If a trader can sell electricity at a higher price in a neighbouring European country than at home, he will try to use this opportunity. Different production structures and different fundamental influences result in growing cross-border trading (but not necessarily in growing physical electricity flows) Northern Europe Strongly dependent on hydropower and thus largely influenced by other fundamental factors than other European regions Presently normal water levels Eastern Europe Partly subsidised cheaper electricity No open wholesale markets CO 2 not as fungible as in open energy markets Southern Europe Increased use of air conditioning and electric heating Failing hydropower production Generally increasing demand due to economic development Price level often higher than in Germany Price level often lower than in Germany 43

45 Power wholesale markets and market deregulation - status quo regarding cross-border network capacities Germany already complies with all requirements for cross-border network capacities. Non-compliant Compliant with most requirements Compliant Long-term agreements are available (no publicly accessible information) Status: April

46 Four core statements by RWE Trading on power wholesale markets Functioning wholesale markets are the prerequisite for competition and the ensuing economic benefits for the European industry. The European wholesale market for power has shown a very positive development: just look at the growth rate for traded volumes or the increasing number of market participants. RWE Trading is one of the leading market participants in Europe and plays an active part in shaping the wholesale markets. Markets require a framework and regulation, but overregulation stifles trust in the markets! Regulation should always focus on promoting competition. 45

47 European power markets showing outstanding development More than sufficient liquidity in the core markets Diversified and numerous market participants Convergence of power prices in Europe Price peaks are also a European phenomenon Market position of individual producers effectively limited in the European market 46

48 Coal trading

49 Coal prices (US$/t) Jan 03 Mar 03 May 03 Jul 03 Sep 03 Nov 03 Jan 04 Mar 04 May 04 Jul 04 Sep 04 Nov 04 Jan 05 Mar 05 May 05 Jul 05 Sep 05 Nov 05 Jan 06 Mar 06 May 06 Jul 06 Sep 06 Nov 06 Jan 07 Mar 07 May 07 Jul 07 Sep 07 Nov 07 Month Monat API#2 API#4 API#2 API#4 Price Preis in in US$ $/t

50 Coal prices and freight prices (US$/t) Price in US$/t Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Month C4 ausschließlich Frachtrate (API#2 - API#4) C4 Implied freight

51 Emissions trading

52 Jul 07 Okt 07 CO 2 emissions trading The CO 2 market is characterised by fast-growing liquidity Jan 07 Apr 07 Jul 06 Okt 06 Handelsvolumen Traded volumes in [1000 1,000 EUA] Jan 04 Apr 04 Jul 04 Okt 04 Jan 05 Apr 05 Jul 05 Okt 05 Jan 06 Apr 06

53 Vol Price Volume [1000 EUA] CO 2 emissions trading Price development (EUA 07) Trading Date Price [EUR/EUA]

54 12000 Vol Price CO 2 emissions trading Price Development (EUA 08) Price [EUR/EUA] Trading Date Volume [1000 EUA]