German Norwegian Energy Forum Conference 2012 in Berlin

1. THE PARADIGM SHIFT IN
POWER MARKETS
Berlin, 23 October 2012

2. Can you imagine? March 2011
2 Paradigm Shift in Power Markets

3. Can you imagine? June 2012
14.740
1790,21 MW
3 Paradigm Shift in Power Markets

4. AGENDA
1 The paradigm shift
2 Impact on gas-to-
power and others
3 Consequences
4 Paradigm Shift in Power Markets

5. Renewable Market Share - Germany
slid
Paradigm Shift in Power Markets
e5

6. Solar Capacity - Germany
slid
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e6

7. Large Fluctuations
Wind+Solar+Import number of peak hours Wind+Solar+Import number of peak hours
‐ GERMAN winter ‐ ‐ GERMAN summer‐
Source: EEX, CASC, ENTSO‐E & Statkraft
slid
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8. AGENDA
1 The paradigm shift
2 Impact on gas-to-
power and others
3 Consequences
9 Paradigm Shift in Power Markets

9. Spot Volatility 2007-2012
Source: EEX, EXAA & Statkraft,
slid
Paradigm Shift in Power Markets
e 10

10. Price Sensitivity in Winter
slid
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11. Dark and Spark Spreads
Source: EEX, ICE, Reuters & Statkraft,
slid
Paradigm Shift in Power Markets
e 12

12. Capacity Development
Conventional Power Plants‘ planned
commissioning (MW) Total Renewables (GW)
Erwarteter Zuwachs an Erneuerbarer Energien (GW)
slid
+ 8 GW + 18 GW
Paradigm Shift in Power Markets
e 13

13. Market Impact
Elimination of summer peak
„Residual load“
High volatility in residual load
Spike risk in winter evenings
Fuel spreads and CO2 under pressure
14 Paradigm Shift in Power Markets

14. AGENDA
1 The paradigm shift
2 Impact on gas-to-
power and others
3 Consequences
15 Paradigm Shift in Power Markets

15. Forecast Horizon
The weather forecast horizon determines up to when an absolute price
asessment is possible.
Beyond the horizon price assesments have a high degree of uncertainty.
Shouldn‘t that lead to higher bid-offer spreads?
Could that lead to more transactions due to more disagreement about the fair
price?
Or to less transactions due to nobody willing to quote an absolute price?
slid
Paradigm Shift in Power Markets
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16. Liquidity Shifts to Short Term
Liquidity is focussing on the short term.
More and more liquidity intraday but mainly „physical“ players.
Very high volatility intraday, very weather driven.
Intraday will not replace day-ahead.
- But who knows what happens at 150 GW of renewables...
Healthy competition amongst exchanges.
Intraday transactions must and will ultimately be automated.
slid
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17. Gas Fired Power Stations
PROs CONs
Can provide the flexibility needed. Do not make money today.
Are relatively cheap „back-up“ – Burn expensive gas.
both in capex and opex. Do not need much cheap CO2.
Do not emit much.
18 Paradigm Shift in Power Markets

18. Market Design
The missing money problem: Academic excercise or short term threat to
security of supply?
Short term: Grid problems. Solutions: Technical, maybe individual redispatch
compensation.
Long term: Definitely improved resource usage and flexible use of renewables;
maybe continued overcapacity, maybe improved interconnection, maybe
storage technology innovation, maybe local underinvestment.
Future development of the EEG.
19 Paradigm Shift in Power Markets

19. Wrap-up
Do not underestimate the paradigm shift.
Liquidity goes short term.
Intraday is becoming a more significant market.
Gas fired power is a good solution but is it the best?
What will be the framework? Hopefully competitive!
Micro-regulation can make a free market turn into a planned economy.
20 Paradigm Shift in Power Markets

20. There is still a lot to do!
21 Paradigm Shift in Power Markets

21. THANK YOU
Stefan-Jörg Göbel
Head of Continental Trading & Origination
+49 211 60244-124
stefan.goebel@statkraft.de
www.statkraft.com