Learning from other markets

Transcription

1 Learning from other markets Dag Seter, Bergen Energi Markets AS November19 th

2 Learnings from other markets Who are the main players in the power market? What do they use the market for? How do they secure their goals by being in the market? Most common strategies/ methods for larger companies Any similarities between Salmon and Electricity Speculation or Risk Management? An example of salmon-price-management 2

3 Bergen Energi Is a neutral and independent Service Provider We provide energy services to clients in Europe Producers, who produce energy Distributors, who buy and sell energy End users, who buy energy for own consumption We provide client-values through Portfolio Management, Data Management, Sustainability and Reporting Bergen Energi was founded in 1991, when the Norwegian electricity market was deregulated Today we are a member of Energy Experts a global energy alliance 3

4 Bergen Energi Markets AS A MiFID licensed company, providing investment services Certified by the «Financial Supervisory Authority of Norway to provide Risk Management Investment Advice Core competence is the European Energy market. The licence is pass-ported to all European countries where we have operations 4

5 Who are the main players in the power market? Producers End-users Traders Gridowners Distributers Banks A Strategy Goal Method Exchanges Brokers Portfolio Managers Risk limitation measures They all use the market to secure their own business and to gain competitive advantages Execute Report & Benchmark 5

6 A well known challenge in a market Budget Spot Index -40% +15% Advanced models 6

7 Index method is popular but does not fit everyone Advantages, disadvantages Price EUR/MWh Hedge level 100% 75% Long position 50% Short position Spot price? 25% 0% 7

8 Advanced modelling Most popular method among Bergen Energi s clients Based on option theory forward contracts not options! buy and sell A method protecting very well against un-preferred price movements / trends gives advantage 8

9 Similarities between Power and Salmon markets? Fundamental driven markets Spot Price = f(supply, Demand) Future Price = f(e(supply, Demand)+X) Fresh commodity Fundamental players Price risk Storage possibilities Investors Counterparty risk Exchanges Spot market Clearing houses Financial contracts Ability for a perfect hedge? 9

10 Exchanges and Clearing houses Facilitate organised market places Advantages Improved transparency Improved liquidity Access to best price Standardised contracts easier to evaluate Reduced/ eliminated counterparty risk Protected system - collaterals Improved control 10

11 Differences Nordic electricity ca 5 times the underlying German electricity ca 10 times the underlying Salmon Ca 0,1 times the underlying? 11

12 Speculation or Risk Management? The Nordic power contracts are traded on average 5 times before delivery Consequently, earlier purchased contracts are sold earlier sold contracts are purchased Is this Speculation or Risk Management? What is your purpose? How are decisions made? 12

13 What s the purpose with a transaction? Is it To have fun? A 50 / 50 bet? To trade for profit i.e. be better than the others? Or is it Managing risks when supporting your organisation s goals? How are decision taken? Based on gut feeling? Based on other s opinions? Are they based on a strategy? Are they aligned with risk limits? Are they based on knowledge about the market and the instruments? Do you have appropriate reporting and controlling lines? You can trade with a loss and still reach your company s goal 13

14 Historical Salmon Prices

15 Testing of Advanced Strategy by Bergen Energi Year % 100 % 80 % 60 % 40 % 20 % 0 % 2 years history Hedge Market PM Advanced Strategy Bergen Energi 15

16 Result of strategy for a buyer Yearly Salmon volume to Buy: Kilo Market price today: x 42,8 NOK = NOK Financial profit: x 10 NOK = NOK Portfolio Value: = NOK 16

17 Historical Salmon Prices To good to be true? Well, lets continue 17

18 Testing of Advanced Strategy by Bergen Energi Year 2012 This year is probably the most difficult year for our model 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % 2 year s history Hedge Market PM Advanced Strategy Bergen Energi 18

19 Result of strategy for a buyer Yearly Salmon volume to Buy: Kilo Market price before delivery: x 24,99 NOK = NOK Financial Loss: x 10 NOK = NOK Portfolio Value: = NOK 19

20 Historical Salmon Prices For a large Consumer the strategy will help you with: Hedge the price in rising trend Reduce you losses in falling trend 20

21 Historical Salmon Prices Make it simple by doing it Advanced! Buying and selling is not speculation It is the best way of reducing risk! 21