Basics of the European Electricity Market Dr. Achim Ufert

Transcription

1 Winter Academy 2018 Trading, Sales and Financing in the European Energy Market and Industry Basics of the European Electricity Market Dr. Achim Ufert 1

2 Agenda Liberalisation of the Electricity Market Basic Principles of Electricity Markets Trading Platforms Price of Electricity Matching of Supply and Demand Hedging of Asset Value Summary 2

3 Who is Uniper? Uniper is an international energy company with approximately 13,000 employees and operations in more than 40 countries. Our portfolio comprises industrial-scale plants, trading activities and service provision. We stand for a reliable supply of energy. Since September 2016, Uniper has been listed on the stock exchange and is represented in the MDAX and MSCI-Germany. Employees Germany United Kingdom Russia Sweden Other 3

4 German Electricity Market prior to Liberalisation Vertically integrated regional utilities (EVU) Fuels Generation Transmission Sales Customer EVU prior to 1998 EVU Competition EnBW 2 Bayernwerk 3 BEW AG 4 HEW 5 PreussenElektra 6 RWE 7 VEAG 8 VEW Regional EVU in German power business until 1998 Vertically integrated utilities held a legally recognized territorial monopoly in their coverage area Supervision and price controls supplemented by punishment of anticompetitive behaviour by the Federal Cartel Office 4

5 Liberalisation of the German Electricity Market Unbundlung of Generation, Trading and Sales Fuels Generation Exchange Trading OTC Transmission Sales Customer TSO Exchange Trader Regulated Competition Sales Unbundling of generation, transfer and distribution as well as development of power trading Development of liquid trading points in Europe (eg EEX) Market participant responsible for risk management Forward trading enables hedging against market price development 5

6 Liberalization Leads to Efficient Production Structures and Fair Market Prices Power market prior to liberalisation Liberalised power market Σ = EVU Market Σ 6

7 Basic Principles of Electricity Markets: Understanding the Merit Order Curve Balancing of supply and demand Merit order of power plants = supply Total load curve = demand Electricity price [ /MWh] Hard coal Lignite Oil Nuclear Load In the energy market, the price is defined hourly by the marginal cost of the last power plant [variable cost of the power plant most recently required for demand coverage] Nature gas Run-off river & renewables Capacity [GW] 7

8 Electricity Market Trading Platforms OTC-Markt Exchange Forward Spot Intraday Forward Spot Intraday Market Physically and financally Physically Physically Financally Physically Physically Compensation Year, month, week, weekend, day Hour, base, peak, block Hour, ¼-hour Year, month, week, weekend, day Hour, base, peak, block Hour, ¼-hour Products 8

9 Over the Entire Life of a Power Plant, the Price of Electricity is Influenced by Various Factors Politics / Regulation Fuel price Disruptive Technologies Emission trading Capex / ƞ New built Nuclear phase-out Power price Micro-CHP, Renewables Competition Demand Customers Transportcapacities Weather / Availability 9

10 Market Prices - Electricity and Fuel Source: Uniper SE, Presentation H1 2017, 08 August

11 Basic Principles of the Electricity Market: Understanding Demand Curves Different timeframes Daily Weekly Yearly 11

12 Basic Principles of the Electricity Market: Match Supply and Demand Supply Products (or Call-Option) Price/ MW CCGT Price/ MW Peak Coal Plant Renewables (Hydro, Wind, PV) Base 24 hrs 24 hrs In an optimal system, generation types and price development match each other Peak load at high prices Base load at low prices 12

13 Basic Principles of the Electricity Market: Dispatch of Power Plants Portfoliomanagement All units of the portfolio are used according to their variable costs Capacity (MW) Peak Load day PL Quarter Future PL Year Future Base Load Montth Future BL Month Forward Own generation Day-ahead Spot-Markt 24 hrs Market price crucial for "make-or-buy" decision 13

14 How Traders Manage Price Volatility Example: 500 MW CCGT Financial hedging with favourable market development: 10 Clean Spark Spread ( /MWh) 500MW x 4 /MWh x 24h = Repurchase on delivery date at negative price -(500MW x -1 /MWh x 24h) = Capital gain = Years -1 Year Sell at 3, buy at -3, sell at 2, buy at -2, sell at 4, buy at -1-2 ((3+2+4) - (-3-2-1)) x 500MW x 24h = capital gain through hedging Delivery date -1 Delivery date: 500MW x -1 /MWh x 24h = Power plant is out of the money, it won t be dispatched. Value added = 0 Power plant operators continuously hedge all three cost components of generation (electricity, fuel, CO2) against price fluctuations On the delivery date, the company will decide between the purchase of electricity in the market and its own production The market is constantly changing, so Uniper needs to continuously hedge its own position 14

15 Uniper Would be Exposed to High Price Risks if the Electricity Could only be Sold Day-Ahead EEX Day Ahead Spot Base 30 Day Average Power prices German spotmarket EEX Day Ahead Spot Hourly 24 Hour Average Uniper is acting to hedge part of the risk and protect value in its own power plants 15

16 Power Trading Provides some Tools to Hedge the Portfolio Risk in Volatile Markets When do we sell? Stepwise hedging of generation up to 3 years in advance Example: European power portfolio of Uniper: (Nuclear, hydro, coal, gas) ~85 TWh p.a. Change in the market price by 1 causes a value shift of 85 million 16

17 Development of Spreads in Germany Clean Dark Spread Clean Spark Spread Clean Dark Spread: Difference between market price and the cost of coal and CO 2 for power generation Clean Spark Spread: Difference between market price and the cost of gas and CO 2 for power generation The margins are necessary to generate the contribution margin for operations and maintenance as well as the capital service Clean Spark Spreads downward trend through: 1. large volumes of renewable electricity, mainly wind and PV 2. relatively low coal prices (compared to gas) 3. low CO 2 -prices Spreads in the electricity market are not sufficient for cost-covering of many power plants. Compensation for capacity provision is required 17

18 Hourly demand in GW Reduction of Demand Peaks: Increasing PV Capacity Changes the Residual Load Shape Shoulder hours Shoulder hours July 10, Demand D - PV July 10 (12 GW PV Capacity) D - PV July 12 (29 GW PV Capacity) D - PV July 20? (52 GW PV Capacity) 18

19 Summary Main task of Uniper trading is hedging of Uniper's portfolio, securing the asset value in the market This requires constant activity over the entire period, from approximately three years in advance to physical delivery Not only electricity is traded, but also fuels and CO 2, as the target is hedging of spreads The uncoordinated expansion of electricity generation from sun and wind in Germany is a big challenge for generators Capacity markets such as implemented in GB, F and RUS are appropriate instruments for maintaining security of supply 19

20 Thank you for your attention! 20

21 Contact: Dr. Achim Ufert Corporate Communications & Governmental Relations Uniper T M achim.ufert@uniper.energy Uniper Global Commodities SE, Holzstraße 6, Düsseldorf, Germany 21

22 Backup 22

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24 Uniper at a glance Our operations Power Generation Commodity Trading Energy Storage Energy Sales Energy Services Main activities We operate in 40+ countries around the world 2.1bn EBITDA in years Experience ~38 GW Generation capacity Gas fired power plants Coal fired power plants Gasstorage Regasification Hydroelectr ic plants Trading Nuclear plants Energy sales to small and large customers Gas infrastructure Service

25 European Energy Exchange Terminmarkt Trading & Clearing Futures Options (Nov 2004) OTC-Clearing Forwards via EFP Options (Nov 2004) Spotmarkt Claused auktion hour contracts Continuous trading Base-/Peakload 25