hydro thermal portfolio management

Transcription

1 hydro thermal portfolio management Schloss Leopoldskron 8 Sep 004

2 contents. thesis initiation. context 3. problem definition 4. main milestones of the thesis 5. milestones presentation 6. résumé

3 . thesis initiation Title: hydro-thermal portfolio management in a market environment thesis is rising from a real case that is examined within the Electrabel company based on a collaboration between Electrabel, EPFL and PSR institute motivation for the thesis (EPFL) using a case study from an electricity utility responding to a real demand from a company achieving the thesis within a corporate context motivation for the HTO-DSS project (Electrabel) need for a state of the art hydro portfolio management know-how introduce sophisticated approach of risk management

4 . context deregulation of ancient monopoly presence of a liberalized market (from cost min to revenue max) presence of spot and financial markets (risk management tools) variety of production technologies (thermal, hydro, wind, ) presence in different countries (wide interconnected geographical position) approaching the 007 fully liberalized electricity market (one market place widely interconnected) different market attitudes of the player (market maker, price taker) definition of a global risk policy and a asset portfolio specific policy

5 3. problem definition (/) asset optimization under specific risk framework inflows asset portfolio FR BE.NE.LUX DE hydro plants production revenues electricity prices thermal plants risk map fuel prices fuel contracts maintenance hedging r i s k f r a m e w o r k

6 3. problem definition (/) this problem is formulated as follows: we need to create a (DSS) in order to: optimize (maximize the value) the asset portfolio value exposed to electricity and fuel price and inflow availability uncertainty under risk constraints the following sub-problems are identified:. define a risk framework that has to be: Corporate wide Asset specific. implement hydro-thermal optimization in a liberalized market under the above mentioned risk framework 3. analyze the interactions of player s market attitude on each country and define the appropriate strategy

7 4. main milestones of the thesis. consideration of a part of the portfolio were we will stretch the issues of: development and calibration of the hydro-thermal optimization algorithm development of the methodology for the risk framework definition development of the portfolio management methodology. consideration of the total portfolio were we will stretch the issues of: applicability of the above algorithm in the fuel contract portfolio implementation of the above methodologies to the total portfolio 3. analysis of the player's market attitude and the interaction between the markets

8 5. milestones presentation. hydro-thermal portfolio consideration and development of risk and portfolio management methodology. fuel contract consideration and implementation of the above methodologies to the total portfolio 3. player s market attitude

9 5. milestone (hydro-thermal portfolio) (/0) the portfolio considered consists of: 774 MW / 777 GWh hydro reservoir and run-of-river assets 375 MW of nuclear asset (no modulation) the combination of the assets forms an homogenous portfolio Capdenac IC: 9 MW AP: 87 GWh Mareges IC: 30 MW AP: 47 GWh Soulom IC: 57 MW AP: 67 GWh Eget IC: 37 MW AP: 8 GWh Louron IC: 49 MW AP: 87 GWh Tet IC: 49 MW AP: 7 GWh Licq IC: 4 MW AP: 93 GWh ArtousteHourat IC: 7 MW AP: 563 GWh

10 5. milestone (hydro-thermal portfolio) (/0) problem description hydro assets stochastic inflows and prices ( = decision under uncertainty) revenue maximization in forward and spot market under risk constraints time period definition long term >year medium term week<, year> short term <week markets available forward derivatives market with physical delivery spot day-ahead hourly auction balancing market real time market

11 5. milestone (hydro-thermal portfolio) (3/0) risk management definition we have hydro assets, with reservoirs, having high flexibility, that require dynamic portfolio management risk types: inflow = available yearly production + intra-year distribution price = available yearly revenues + intra-year distribution [m3] Or [EUR/MWh] [weeks]

12 5. milestone (hydro-thermal portfolio) (4/0) risk framework is derived from: min revenues needed for the company in a CI (R@R approach) budget to attain based on the forecasts overall wish to risk exposure (risk appetite) 0 Rmin budget forecast risk Max [EUR] risk framework definition corporate risk levels defining: Rmin portfolio mgt. risk levels defining: budget and risk appetite risk reduction capacity production re-arrangement in order to concentrate in low price and inflows distribution stages (auto-hedging capacity of the asset) use of financial instruments in order to lock a a certain price the above options lead to the following trade-offs Rmin guaranteed vs. high risk short term revenues low risk mkts. vs. high risk/flex mkts.

13 5. milestone (hydro-thermal portfolio) (5/0) we need to optimize the production of the assets in order to: guarantee Rmin for the total portfolio perform asset backed arbitrage in the long term market in order to profit from the forward market price distortions sell the high flexibility of the asset in the short term and real time market [EUR] Flexibility Asset Backed Arbitrage Present Future time Minimum revenues

14 5. milestone (hydro-thermal portfolio) (6/0) main trade-off is: use the water of the reservoir now (immediate benefit) or tomorrow (future benefit) [EUR] future operating benefit immediate operating benefit final reservoir level the algorithm used to solve this problem is based on the Stochastic Dual Dynamic Programming (SDDP) technique where: the sum of the immediate and future benefit is maximized for every stage (, week, month, ) calculating a policy table (future benefit function) for every stage by approximating this function with lines (Bender s cuts)

15 5. milestone (hydro-thermal portfolio) (7/0) input inflow scenarios water level on reservoirs spot price scenarios minimum revenues confidence interval output production schedule allocation in the markets risk view of the portfolio hedging strategy q t V t Π d R min _R φ U t e t, E c HTO.SDDP Input: V t, q t, Π dt, R min _R φ Output: U t, e t, E ct OR HTO.SDDP Input: V t, q t-, Π dt, R min _R φ MaxRev Optfolio A. Output: U t B. Output: e t, E ct

16 5. milestone (hydro-thermal portfolio) (8/0) preliminary results for the hydro system spot market (no derivatives market) no risk constraints (no minimum revenues guaranteed) total production cdf total revenues cdf

17 5. milestone (hydro-thermal portfolio) (9/0) preliminary results weekly generation distribution

18 5. milestone (hydro-thermal portfolio) (0/0) following steps model calibration considering risk constraints and use of derivative products (forwards) risk allocation on the assets defining the portfolio modeling of the short-term trade-off between spot and balancing market

19 5. milestones presentation. hydro-thermal portfolio consideration and development of risk and portfolio management methodology. fuel contract consideration and implementation of the above methodologies to the total portfolio 3. player s market attitude

20 5. milestone (total portfolio) (/) the total portfolio will be considered the following technologies will be considered within the portfolio: coal production plants gas production plants hydro production plants nuclear production plants the following developed market structures will be considered: France Netherlands Germany

21 5. milestone (total portfolio) (/) additional factors to be considered: thermal plants with considerable flexibility fuel price uncertainty optimization of fuel contracts the total portfolio will be optimized taking into consideration the synergies between: the interconnected countries (different price areas) the complementarities of the technologies the allocation of the risk in the total portfolio (cross-hedging capacity)

22 5. milestones presentation. hydro-thermal portfolio consideration and development of risk and portfolio management methodology. fuel contract consideration and implementation of the above methodologies to the total portfolio 3. player s market attitude

23 5. milestone 3 (player s market attitude) (/) we need to consider: presence in 4 markets (Belgium, Netherlands, France and Germany) with fully developed market structure (not Belgium) having high degree of interconnection and different importance of the player s presence at each market we can identify 3 main market attitudes market maker offering both sides of the curve important player influence on prices price taker takes the price that the market defines according to each attitude the player develops a different strategy which applies to each market

24 5. milestone 3 (player s market attitude) (/) we need to define: the strategy of the player for each market the interaction of the markets according to the player s action the synergies of the markets to the player s strategy for: portfolio management risk management

25 6. résumé new-coming factors: liberalized electricity markets with a variety of products introduction of the electricity price uncertainty increase of interconnection degree within countries/markets impose to the electricity asset industry a new approach concerning: the portfolio management optimization of the assets synergies between assets the risk management exploiting the auto-hedging capacity of the assets using financial products the strategic position of a player at each market bidding strategy in the market optimal market share