Commodity Trading Introduction to Markets · Commodity Trading Introduction to Markets 7.3.2011...

Commodity TradingIntroduction to Markets

7.3.2011

Mittwoch, 9. März 2011

Transportation

Physics: Higher Voltage Transportation – Less Energy Loss

Transportation• Physics: Higher Voltage

Transportation – Less Energy Loss• 1950s: International (Cross Border)

Grids (CH-I / CH-D-F)• 1967 Grids of F-D-CH merge

(technically) on 220 kV Level. „UCPTE1“ 14 more countries join

• 2005 EU allows Cross Border Auction

Different Grid Levels (Voltage)

Refining

Wholesale:Multidirectional Market

Unidirectional Market

Storage: Electricity as such is NOT storable – Flexible

Retail Price Composition

Demand StructureCommerce

Industry

Households

France

Germany

Switzerland

Commerce

Industry

Households

Commerce

Industry

Households

Commerce includes Public AdministrationMittwoch, 9. März 2011

Demand Determined by• Economic Growth• Temperature• Daylight / Daytime• Day in Week

• Generally Inelastic

POLPXUKPX

Liberalized MarketsPartly liberalized MarketsNo Liberalization

APX/ENDEX

Powernext

Belpex/ENDEXEEX

Nordpool

Electricity Exchanges in Europe (2008)

Trading Volume increases, but less than one third at exchanges

* Messbares Handelsvolumen an Börsen und über elektronische Brokerplattformen OTC

Demand (aggregated Bids) Supply (aggregated offers)

Temperatur Import/Export Streik Wirtschaft Wind Wasser AusfälleTagestyp Tageslicht …

Volumen [MWh]

Preis [EUR]

Wind Wasser AusfälleWind Wasser

At exchange the aggregated supply and demand matches for the highest traded volume

Volumen [MWh]

Preis [EUR]

Balance Price (MCP*)

Volumen [MWh]

Preis [EUR]

Volumen [MWh]

Preis [EUR]

Volumen [MWh]

Preis [EUR]

Volumen [MWh]

Preis [EUR]

Markets OTC (Contracts/ Broker) Exchanges

Stansard Products Day Ahead Week Ahead Front Months Front Quarters Front Years

Term or Forward

Market and Products

Price Developement 5Y

Conventions• X buys 10 MW „Cal 2012 base“ RWE

Grid at 52€ from Y means:

Y delivers from 1.1.2012 0am till 31.12.2012 12pm 10 MW for X into the RWE Grid.

X pays (monthly 20 bd after end of month) the exact amount energy (in MWh) delivered times 52€. I. e. all

Hourly price week of 18. to 24.12.09

Hourly price week of 25. to 31.12.09

Dez 00 Dez 01 Dez 02 Dez 03 Dez 04 Dez 05 Dez 06 Dez 07

h7- Days Average EEX Spot Prices (base) tell the history

Enron Insolvency

Irak War

7- Days Average EEX Spot Prices (base) tell the history

Enron Insolvency

Hot Summer: High demand / less Nuclear Supply

Irak War

Enron Insolvency

Gas and CO2 Price surge

Irak War

Enron Insolvency

Windy – warm

Jan / Feb

Irak War

Enron Insolvency

Windy – warm

Jan / Feb

Record cold March

Irak War

Enron Insolvency

Windy – warm

Jan / Feb

Record cold March

Low Water on Rhine

Irak War

Enron Insolvency

Cold WinterGas and CO2 Price surge

Windy – warm

Jan / Feb

Record cold March

Low Water on Rhine

Irak War

Enron Insolvency

Cold WinterGas and CO2 Price surge

CO2 price collapse after Publishing of data

Windy – warm

Jan / Feb

Record cold March

Low Water on Rhine

Irak War

Enron Insolvency

Cold Winter July Record Heat

Windy – warm

Jan / Feb

Record cold March

Low Water on Rhine

Irak War

Enron Insolvency

Windy – warm

Jan / Feb

Mild Winter & CO2 collaps

Record cold March

Low Water on Rhine

Irak War

Enron Insolvency

Windy – warm

Jan / Feb

Record cold March

Low Water on Rhine

Coal- Rallye

Irak War

Enron Insolvency

Windy – warm

Jan / Feb

Little Wind and Nuke Outage

Record cold March

Low Water on Rhine

Coal- Rallye

Irak War

Market Players in GermanyLarge

Utilities(RWE / E.ON)

Green Energy

Producer

Foreign Generation

&Imports

(Verbund)

Grid Operators

„Stadtwerke“

Large Consumer

(Audi)

End User

Traders

Value Chain of Electicity

Generation

Transmission

Transition

DistributionLarge Utilities

Stadtwerke

Market Players in GermanyLarge

Utilities(RWE / E.ON)

Green Energy

Producer

Foreign Generation

&Imports

(Verbund)

Grid Operators

„Stadtwerke“

Large Consumer

(Audi)

End User

Traders

Interest of Large Utilities• RWE or E.ON produce each ca. 200

TWh p.a. in Germany• Income according Market Price, i.e. for

each €/MWh more, income and EBT goes up 200m€ (roughly 5%)

• 1. Interest in high prices• 2. Interest in middle term hedging

(next 2-3 years)

Hedging: Sell the Electricity (or Fix Prices) the next years to an

Price Building: Cost of

Investment Cost(Interest and Amortisation)

Operation & Maintenance

Fuel Costs (times efficiency)

Emission Costs

Long TermMarginalCosts InvestmentDecisions

Short TermMarginal CostsOperation Decision

Gas ca. 70%Nuke ca. 20%Wind 0%

The Merit-Order-Curve reflects a order of Power Plant due to there short term marginal costs

€/MWh

‘mus

s’ – e

€/MWh

‘mus

s’ – e

€/MWh

‘mus

s’ – e

€/MWh

‘mus

s’ – e

te Coal

€/MWh

‘mus

s’ – e

te Coal

€/MWh

‘mus

s’ – e

te Coal

€/MWh

‘mus

s’ – e

te Coal

0 10 20 30 40 50 60 70 80 90 100GW

Deutschland Frankreich Italien

Merit Order Curve depend on the national Power Plant Park

0 10 20 30 40 50 60 70 80 90 100GW

Deutschland Frankreich Italien

• Verfügbarkeiten, Saisonalität, Nachfrage

Merit Order Curve depend on the national Power Plant Park

Electricity and Politics

Fight for Endesa• http://www.fundacionfaes.org/record_file/filename/

858/00076-00_-_papeles_44_ingles.pdf

• Endesa: Spanish Utility (0% State held in 2004)• Gas Natural: Spanish Gas Utility• CNE: Spanish Energy Regulator• CNMV: Spanish Finance Regulator• E.on: German Utility• Acciona: Spanish Construction Company• ENEL: Italian Utility (31% state-hold)

Fight for Endesa

Fight for Endesa• January 24th, 2007. The European Commission

announced that it will take the Government of Spain to the European Union’s Court of Justice because of the “Anti-E.On Decree”.

• March 12th, 2007. Enel announced that it controlled 24.98% of Endesa and stated its intention to appoint three Directors, despite the fact that current Spanish legislation prevents foreign state-owned companies from sitting on the Board of Directors and limits their voting power to 3% of the share capital.

Electricity Facts: Value Chain• Storage: Only indirect (flexible generation)• Transportation: Over Grids (standardized,

Grid-Monopols: TSO) www.swissgrid.ch www.rwe.de

• Transportation: limited (ca. 1000km) due to energy loss

• Refining: NO chemical processing but voltage transitors

• Production (Generation): Dependent on fuels, different generation EU27: 28% Nuke, 26% Coal, 24% Gas / US: 45% Coal / China 70% Coal

Electricity Facts• Demand:

– dependent on GDP and population(Western Europe, US, 6-7 MWh p.a. per capita)

– Average EU/ US: 33% Industry, 33% Household, 33% Administration

– US 4000 TWh / Europe 3500 TWh / China 4000-4500 TWh / Japan 1000 TWh / Russia 1000 TWh

• Market, Standards: – Energy – Capacity (maximal Generation) = Energy per time– Capacity Unit MW– Energy Unit MWh: (1TWh=1‘000 GWh=1‘000‘000

MWh=1‘000‘000‘000 kWh)– Price ca. € 50 / MWh– Specify Delivery Point and Period (e.g. base load May, RWE

Electricity Facts• Market, Exchanges: Regional markets, – US: PJM, ERCOT, New England, NY,

California, Midwestwww.ferc.gov/market-oversight/mkt-electric/overview.asp

– Europe: EEX, Nordpool, et al.www.eex.de

• Market, Players: Utilities, some commodity traders

• Politics: Large political (nationalistic)

Commodity Trading Introduction to Markets · Commodity Trading Introduction to Markets 7.3.2011...

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