Energy lectures 0405011

ENERGY ALERT Limited
Bringing transparency to
competitive energy
markets
How do end-users evolve risk management and purchasing strategies that are truly efficient and sustainable?
By: Mike Coulten
Mob: 07971 691747
Office: 01638 508444
mcoulten@energy-alert.co.uk
www.energy-alert.co.uk

A Sustainable Procurement and Risk Management Structure
Trading advice
Market “forecasts”
News/data feeds
Real-time price
Instructions
& confirmations
Written Risk
Management
Policy
Consumer Procurement Department
Supply
Contract(s)
Supplier Trading Desk
And many more.
Broker with best
price and best liquidity
changes over time.
Real – time alerts
Owners & Authors
Info and trade capture
Trading
Strategy
Other services
Procurement & Risk Management
Committee
Company Directors
Procurement Staff
Reporting
Separate Risk
Management
Function

Real time lock/unlock events require a new business process – get organised, save time
Flexible procurement is an ongoing real time task
Each purchasing event (a day, month, quarter or season) can be deconstructed to the following four stages
SLOW
SLOW
QUICK
QUICK
Risk Policy
&
Trading Strategy
Monitor
&
Alert
Negotiate
&
Purchase
Report
&
Review
Monitor risk metrics in real time, alert if triggered
Ensure real time receipt of risk metric alerts by authorised personnel
Negotiate the best possible price with your supplier from the many broker and exchange price’s available
Report back to RM policy and trading strategy owners to assist refinement of policy/strategy
Declare risk control metrics and systems
Budget limit – the maximum you will pay
Budget target – the price at which further risk is not worth taking
Declare operational responsibilities and authorisations
Formulate purchasing strategy to achieve target within risk controls
SLOW
Research, strategise, debate, analyse, decide - 80-20 rule
QUICK
Execute previously decided strategy – automatic and efficient

Capturing low prices - whenever and however you buy its still a negotiation!
Prices are quoted across multiple brokers
vary across these brokers by £1/MWh or more in illiquid base and peak load
Are often unquoted for much of the day, you need estimates to avoid gapping through stop losses or buy triggers
If you don’t:
Ask for the best price across all the brokers you won’t get it
Know what the short term dynamic of prices is, rising or falling, then you may miss a chance to wait and get better prices or act quickly to avoid higher prices
What is required is a system that applies the RM and Trading Policy
Aggregate all prices from all brokers
Estimate unquoted prices to create a full forward curve in real time, and
On breach of a price or MTM limit, provide second by second information on the price to authorised personnel in real time, wherever they are, reliably, every time.
Just such systems solutions are now becoming available
Web application so it can be accessed from anywhere including smart phones
Secure private cloud to serve the app with SSL connections and password login

Reports direct to
ENER-G clients email on any device i.e. Blackberry/PDA, PC, mobile phone
Limit violation alerts to mobile phones
System architecture of a very high availability risk management system
One Or
More
Price
Source
HOT FAILOVER
PRIMARY
< 60 seconds from new
price received to SMS
text message sent,
or browser window
update.
Cloud computing application
No software to install
Secure access from any web browser anywhere
Secure data held in private cloud with multiple replication and backup
Any Internet browser anywhere
email
SMS text
2-way
Web Interface on smart phones (Android 2.2) and laptops.

Executing decisions with full information=Better purchasing
See the dynamic of the within day Bid and Ask prices you are exposed to. What is the whole market really doing?
This trade looks bad value
There was a better price quoted at the time.
This trade looks good value given the market
Whenever a trade is made it can now be seen in the context of the market at that precise time and linked back to the actual individual Broker Order IDs. Although prices did fall afterwards, at the time of the trade this was a good price between the bid and ask

Payoff charts-a way to think about outcomes
Bank Traders Pay
The Banker
Trading Loss
Trading Profit
Increasing Risk
CRASH!
Bad for Bank Trader

Payoff charts – the energy buyer
Procurement staff pay
The Energy Buyer
Exceed budget
Beat budget
Increasing Risk
Bad for Procurement staff

Payoff charts – the consumer’s FD
FD pay
The FD
Performance bonus
more likely
Exceed budget
Beat budget
Increasing Risk
Potential loss on
company stock
Bad for FD

Payoff charts – the consumer shareholder
Company profit up
The Owner of the consumer firm
Tax on profit
Exceed budget
Beat budget
Increasing Risk
Company profit down

Payoff charts – the procurement consultant
Consultant fee
The Procurement Consultant
Shared “savings” or other
performance bonus
Fixed fee
Exceed budget
Beat budget
Increasing Risk
Consultant debt

Fixed contract is a special case of flexible
Fixed Price contracting – every 1, 2, 3 years..
Flexible contracting – tender contract once then, looking 3-5 years ahead..
Identical exposure and process, flexible events are just real time and, potentially, more frequent

Summing up
Get organised… save time and expense, 80-20 rule
Use limits… have stop loss and buy trigger for any floating volumes
Think about incentivisation… of your various stakeholders
Use system solutions… to implement best practice at low cost
Audit and review.. to feed back into policy development
SUSTAINABLE because you are in control at all times and, with a full audit trail, can always explain how you arrived at the outturn price. Knowledge is not lost if outsourced partners are changed
EFFICIENT because whatever the trading and risk management policy you execute it effectively and capture the best prices given the trading signals from the policy
TRULY because you are transparent having recorded entire process and market prices from policy creation to price capture which feeds back into evolution of improved policies and strategy.

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Energy lectures 0405011

by Energy Alert on Oct 13, 2011

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Energy lectures 0405011 — Presentation Transcript