EEW Sept. Milan

Transcription

1 EEW Sept. Milan Effective Hedging for onsumers and roducers Simone Rodolfi Head of Origination & Sales TO Italy age 1 Axpo Italia SpA

2 Agenda Energy risks rice Risk rice Risk Hedging and Hedging Strategies AM lassic Barriers urve Index Volume Risk Volume Risk Hedging roduction Insurance annibalization Risk annibalization Risk Hedging age 2

3 Energy risks Business Risk is generally defined as the possibility that a company will have lower than anticipated profits, or that it will experience a loss rather than a profit. Business risk is influenced by numerous factors, among them, energy costs. BREAKING DOWN ENERGY RELATED BUSINESS RISK Focusing on energy risk, consumers and producers share some common risks due to: price uncertainty volume uncertainty correlation between volumes and prices (renewable) Starting from a current value based on current forward market prices and expected consumption/production volumes, uncertainty comes from price volatility, volumes variations and the impact that a volume variation has on market prices age 3

4 rice Risk That s the variability of energy prices and con be simulated based on historical data and volatility For Italian spot simulation we use an Orstein-Uhlenbeck process + Brownian motion, For zonal simulation we add additional jump processes following a areto distribution rice Risk Fwd price age 4

5 rice Risk Hedging rice Risk 1- Fix rice for all volumes (then wait and hope) 2- Do Nothing (then wait and hope) age 5

6 rice Risk Hedging (2) 1- Fix rice Betting that prices will go up, being fully exposed to a decrease in prices rice Risk 2 Do Nothing Betting that prices will go down, being fully exposed to an increase in prices Not managing your risk position What s the desired risk level you can live with? age 6

7 rice Risk Hedging Strategy - AM rice Risk Active ortfolio Management is just a box of instrument to help you MANAGE the price risk of your energy portfolio, where the portfolio is your consumption/production Strategy A (AM classic). In agreement with your risk policy, go for different fixing at different times - Hedging strategy age 7

8 rice Risk Hedging Strategy - Barriers rice Risk Strategy B (Barriers). (based on Budget) set a desired Stop Loss or Take rofit levels cut tails of your risk curve an be implemented with two mandates to buy volumes SL or T levels or through a OLLAR structure (they work in the same way only if prices settle above/below as the collar still leave the possibility for prices to bounce back) BUDGET age 8

9 rice Risk Hedging Strategy - urve rice Risk Strategy (urve). Look at the forward curve and define risk strategy on more than 1 year You have a % of your portfolio at spot price on al 15 al 16 reaches a level in line with budget/expectations You want to have al 16 closed at this level or open below spot (spot - discount) and to optimize this year s costs. Sell a UT option to AXO: AXO will grant a discount on 2015 and/or 2016 spot mkt prices for the right to sell at the current levels age 9

10 rice Risk Hedging Strategy - Index Strategy D (in-dex). Stabilize your margins by linking your energy costs to your revenues when the spread guarantees desired returns or to your core business cost/revenues to optimize hedging activity rice Risk Example 1 Refinery osts linked to Brent while Revenues linked to refined products Risk strategy aim is to optimize crack spread (difference between refined products and Brent) Index electricity to rack Spread Example 2 Liquid Biomass producers osts linked to alm oil while Revenues linked to electricity prices An index linked to palm oil will stabilize margins Locked in spread age 10

11 Volume Risk Volume Risk For consumers and traditional producers uncertainty in volume risk is mainly due to small or predictable changes of the plant operations. There is still some volume risk component, which can vary depending on the industry and operating modes of the production sites. For renewable producers volume risk is considerably higher, as production volumes varies sensibly according to weather conditions, strongly affecting the overall revenues. This is particularly true for wind production, while solar shows more recurrent patterns. In order to simulate actual production and volume risk, we mainly consider a: Stagional shape inferred from historic production orrelation with prices from linear regression between differences from the shape and realized prices Stochastic component from maximum likelyhood estimate of the residual differences from realized production age 11

12 Volume Risk Hedging roduction insurance Volume Risk Volume risk can be hedge with insurance-style product that can guarantee a minimum level of revenues (volume*price), therefore higher cash flow and revenue certainty and higher asset value. an either be structured as a swap: roducers pays variable monthly amount and receives fixed monthly amount guaranteed by AXO Or a put option on volumes: Insurance Limit roducers pays an upfront premium and receives the maximum between actual and minimum guaranteed revenues Guaranteed roduction age 12

13 annibalization Risk annibalization Risk orrelation risk or cannibalization risk derives from the effect that volumes might have on prices, i.e. an higher solar/wind production volume, causes lower prices therefore lower revenues for the producer. orrelation risk is negligible for consumer, while it can have an important effect for producers. rice-volume correlation price Wind roducers - Analysis on data / Solar ITA Effect on Revenues MEAN % of p 0 V 0 Nordic DE DK NL UK FR p * V cov( p(h) V(h)) IT_ wind IT_ solar -1% 1% -1% 0% 0% -1% -1% 0% 0% -10% -9% -4% -2% -3% -9% -11% no significant bias significant bias age 13

14 annibalization Risk Hedging annibalization Risk omplex risks, where best hedging strategy is defined by considering n different outcome of n different strategies, with price and volumes are simulated according to historical correlation Hedging products m+1,+2,+3, Q+1,+2, cal, for peak and offpeak Hedging limits Quantity hedged less than monthly expected consumption/production Hedging strategy can be obtained minimizing the variance of the payoff simulating prices and production Hedging strategy The result of the model is a combination of traded products that minimizes the variance of the simulated payoffs. age 14

15 annibalization Risk Hedging Results Red: pnl without hedging Black: pnl with hedging Blue: expected production Green: hedging strategy Multicolors: simulated production Solar Wind annibalization Risk April: expected production and hedged volumes age 15

16 Disclaimer Questa presentazione e i suoi contenuti sono stati elaborati da Axpo Italia S.p.A. e sono di sua esclusiva proprietà. Ne è vietata la divulgazione a terzi e la riproduzione, anche parziale, con qualsiasi mezzo compresa la fotocopia, anche a uso interno e didattico, senza il consenso scritto di Axpo Italia S.p.A. Axpo Italia S.p.A. ritiene in buona fede che le informazioni contenute nella presentazione siano corrette. Axpo Italia S.p.A. non ha tuttavia effettuato una specifica verifica (e non fornisce pertanto alcuna garanzia, espressa o implicita) circa l'accuratezza o la completezza di tali informazioni, pertanto i dati che ne derivano non possono essere considerati tali. Axpo Italia S.p.A. non potrà pertanto essere ritenuta in alcun modo responsabile per perdite o danni derivanti dall'uso delle informazioni qui fornite. Questa presentazione non può essere intesa come una consulenza all'investimento in materia di strumenti finanziari o commodities, o in materia fiscale, legale o di altro tipo. This presentation and the information contained herein have been prepared by and remain the sole property of Axpo Italia S.p.A. Disclosure and/or copy of the same, in whole or part, without the written consent of Axpo Italia S.p.A. are strictly prohibited. Axpo Italia believes in good faith that the information provided by this presentation is accurate. However, Axpo Italia S.p.A. did not conduct any investigation on such information and therefore does not provide any representation or warranty, expressed or implied, as to the accuracy and completeness of this presentation and the information herein. Axpo Italia S.p.A. shall not in any way be liable to any party for losses or damages deriving from the use of this presentation and the information herein. This presentation cannot be construed as an investment advice or a recommendation to purchase, hold or sell any financial instrument or commodity, or as an advice of a different nature. age 16

17 Many thanks for your attention Axpo Italia SpA - Società a Socio Unico Sede legale e Direzione: Via Enrico Albareto, 21 IT Genova T F Uffici di Roma: Via IV Novembre, 149 IT Roma T F Società del Gruppo Axpo age 17