Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Power, Gas and Certificates
Trading Industry in Europe
January 29, 2015
Presented by Elie El Haddad
1
Agenda
 Industry Overview
 ETRM Projects Requirements
 Comparative numbers
2
Why are the Power, Gas and Emissions
always mentioned together?
• ETRM (Energy Trading and Risk Management) often refers t...
Power Industry
4
Power
Generation
5
Power Generation
• Thermal power stations:
• Fossil-fuel
• Nuclear power
• Geothermal
• Biomass-fuelled
• Waste heat
• Gre...
Power generation
Scale of power
800MWh
Nuclear
3MWh
Wind turbine
450MWh
SolarHydro
2GWh2GWh
Coal
4th generation
3rd genera...
Power Generation
Gross Electricity Generation – EU
Solid Fuels
Oil
Renewables
Gas
Nuclear
Other
Biomass <1%
Waste <1%
PV 1...
Power
Transmission
(high voltage)
9
Transmission
• European Network of Transmission
System Operators for Electricity
(ENTSO-E) is an association of Europe's
T...
Power Distribution
12
Distribution
• Local power resellers distribute the power to
homes, schools, businesses, industry, etc.
• Distribution is ...
ETRM Projects
Basically, what is required is to set up a platform to:
- Calculate the Risk
- Price the power
- Trade it
- ...
What is the asset being traded?
• By nature, electricity cannot be “kept for later”
• This is what distinguishes it from o...
Power Need Fluctuation
Yearly Profile
DemandinMWh
16
Power Need Fluctuation
Daily Profile
17
Power Need Fluctuation
Temperature effect
18
Power Need Fluctuation
Special events can affect the power profile.
One famous example of a wrongly predicted profile is t...
Power Need Fluctuations
TV shows can also affect the need profile.
For example, the top 3 fluctuations in
the UK are:
• A ...
What happens when power need
fluctuates?
When demand raises, power suppliers must provide power on the spot
to their clien...
What about power availability?
Example from Germany  Nuclear reactors provide a constant power
 Wind power is not reliab...
Intermittent Source Production
Example of wind, solar and small
hydroelectric power production
23
Intermittent Source Production
Photovoltaic energy
The energy of sunlight is about 1 kW per square meter. So the sunlight
...
How to price the power?
At mid-day, consumers use much more power than at 4am and are ready to pay
more for it.
A company ...
How to price the power?
The base cost is:
The cost of site preparation, construction,
manufacturing, commissioning, financ...
How to price the power?
However, many power plants produce much less power than their rated capacity
Some power plants pro...
Trading pattern
During the day, power producers
 Analyze the market, the risks, the weather conditions, fuel price change...
What if the scheduling failed?
If one operator’s scheduling fails, all the grid will be impacted, and thus
all European cl...
Recycling Nuclear energy
What if the demand drops below the nuclear base production?
The exceeding energy is used to pump ...
Gas Trading
Whenever a fluctuation requires instant power, gas turbine are put into contribution.
Therefore gas trading is...
Emissions Trading
 Certificates were created to highlight “environment quality” in industrial production, and the desire
...
Risk Management
Pricing is closely linked to Risk Management. Higher risk, means higher
margin and higher price.
In additi...
VaR and PaR
 The Value at Risk – VaR: It is used to inject a set of
random data (deterministic, historical or Monte-
Carl...
VaR and PaR
Value at Risk is measured in three
variables:
• the amount of potential loss
• the probability of that amount ...
Comparative Numbers / Lebanon
Technology
Region or
Country
At 10% discount
rate
At 5% discount rate
Nuclear Europe 8.3-13....
Comparative Numbers / Lebanon
37
Comparative Numbers / Lebanon
38
Comparative Numbers / Lebanon
39
Comparative Numbers / Lebanon
800MWh
Nuclear
4th generation
3MWh
Wind turbine
450MWh
SolarHydro
2GWh2GWh
Coal
3rd generati...
41
42
43
• IEA
• EDL
• EDF
• Carboun
• Alpiq
• Statkraft
• Bloomberg
• PWC
• Cap Gemini
• World Nuclear Association
• US Energy Inf...
Upcoming SlideShare
Loading in …5
×

Power, Gas and Certificates Trading Industry in Europe

828 views

Published on

Elie El Haddad is the speaker for the monthly lecture of the PMI Lebanon Chapter and the presentation title is "Projects for the Power, Gas and Certificates Industry".
Lecture Outline and Objectives:
Outline
Power generation industry
Power scheduling, routing and balancing
Power trading
Challenges of project management for the power industry
Objectives
How the energy is produced
How the energy is delivered to the end customer
How the pricing is made
How the risk management is calculated
Project implementation for the power industry

Published in: Leadership & Management
  • Be the first to comment

Power, Gas and Certificates Trading Industry in Europe

  1. 1. Power, Gas and Certificates Trading Industry in Europe January 29, 2015 Presented by Elie El Haddad 1
  2. 2. Agenda  Industry Overview  ETRM Projects Requirements  Comparative numbers 2
  3. 3. Why are the Power, Gas and Emissions always mentioned together? • ETRM (Energy Trading and Risk Management) often refers to the power, gas and emissions trading. • Why Gas traded as energy? Simply because its unit is the Watt. • An energy producer, to be able to generate and trade power, needs to trade Gas and Emissions, Coal, Fuel Oil, etc. Plus some basic FX and MM trades. • Nuclear combustibles like enriched uranium are not traded in open markets, but are part of more complex deals and agreements. 3
  4. 4. Power Industry 4
  5. 5. Power Generation 5
  6. 6. Power Generation • Thermal power stations: • Fossil-fuel • Nuclear power • Geothermal • Biomass-fuelled • Waste heat • Green stations: • Hydroelectric • Photovoltaic • Wind • Marine • Osmosis 6
  7. 7. Power generation Scale of power 800MWh Nuclear 3MWh Wind turbine 450MWh SolarHydro 2GWh2GWh Coal 4th generation 3rd generation Gas 700MWh 600MWh PV 800MWh Fuel Oil 1GWh 2GWh 7
  8. 8. Power Generation Gross Electricity Generation – EU Solid Fuels Oil Renewables Gas Nuclear Other Biomass <1% Waste <1% PV 17% Hydro 47 % Wind 34 % Geothermal <1% CSP <1% Ocean <1% 8
  9. 9. Power Transmission (high voltage) 9
  10. 10. Transmission • European Network of Transmission System Operators for Electricity (ENTSO-E) is an association of Europe's Transmission System Operators (TSOs) • It uses a super grid across all Europe • At any point in time, the grid needs to be balanced 10
  11. 11. Power Distribution 12
  12. 12. Distribution • Local power resellers distribute the power to homes, schools, businesses, industry, etc. • Distribution is two-ways since private power producers are entitled to sell to the grid the energy they have generated 13
  13. 13. ETRM Projects Basically, what is required is to set up a platform to: - Calculate the Risk - Price the power - Trade it - Trade the other needed assets to produce the power Except that we are dealing with the most complex machines ever built and exploited by man : Nuclear Reactors And put under huge constraints in terms of availability and precision 14
  14. 14. What is the asset being traded? • By nature, electricity cannot be “kept for later” • This is what distinguishes it from other financial or physical assets: Electric power must be consumed at the very moment and place it is produced • Demand fluctuates, but supply is inflexible • As a consequence, the total electricity grid must at any time and place be “in balance” In order to guarantee the overall balance, a framework is imposed on every participant • Up-front: rules • Real-time: adjustments • After-event: penalties 15
  15. 15. Power Need Fluctuation Yearly Profile DemandinMWh 16
  16. 16. Power Need Fluctuation Daily Profile 17
  17. 17. Power Need Fluctuation Temperature effect 18
  18. 18. Power Need Fluctuation Special events can affect the power profile. One famous example of a wrongly predicted profile is the royal wedding of Charles and Diana in 1981, where the largest surge in power demand was a huge 1800 Megawatts (MW), the equivalent to 720,000 kettles being boiled at the same time. In 2011, the latest royal wedding generated a different profile, for different reasons. 19
  19. 19. Power Need Fluctuations TV shows can also affect the need profile. For example, the top 3 fluctuations in the UK are: • A 2,800 MW surge, set at the end of the penalty shoot-out after England’s World Cup semi-final against West Germany in 1990 • A 2,600-MW surge after a 1984 episode of “The Thorn birds” • A 2,570-MW surge at half-time during England’s semi-final match against Brazil in the 2002 World Cup 20
  20. 20. What happens when power need fluctuates? When demand raises, power suppliers must provide power on the spot to their clients: They use the ETRM to buy and sell power 21
  21. 21. What about power availability? Example from Germany  Nuclear reactors provide a constant power  Wind power is not reliable  Solar power is only available during daytime  Coal plants allow very little production fluctuation  The only source that can easily be controlled is gas turbine. Simple equation: more gas on the input, more power on the output Therefore, in order to compensate for sudden changes in profile, the gas turbines are put in production. 22
  22. 22. Intermittent Source Production Example of wind, solar and small hydroelectric power production 23
  23. 23. Intermittent Source Production Photovoltaic energy The energy of sunlight is about 1 kW per square meter. So the sunlight hitting the roof of a normal car is about 1 kW. If PV crystal efficiency is 100%, 1 m2 will produce 1kW. But a first price photovoltaic cell has 15% efficiency => 150W/m2. Space-age cells are 40% efficient, generating about 400W/m2. Practically, it means that to provide 2500MW, we would need to cover 10,000,000m2 with photovoltaic cells (25% efficient) USD/W Austr alia China Franc e Germ any Italy Japan UK US Residential 1.8 1.5 4.1 2.4 2.8 4.2 2.8 4.9 Commercial 1.7 1.4 2.7 1.8 1.9 3.6 2.4 4.5 Utility-scale 2.0 1.4 2.2 1.4 1.5 2.9 1.9 3.3 PV energy is expensive. A 2,500MW production farm would cost 5 billion USD to implement. Furthermore, the lifespan for a PV cell is 20 years (1% efficiency decrease per year). 24 And another major issue: PV power is available only during the day…
  24. 24. How to price the power? At mid-day, consumers use much more power than at 4am and are ready to pay more for it. A company in shortage is ready to pay very high amounts to compensate for its production (and weak prediction) 0 MW 1000 MW 0 EUR/MWH 100 EUR/MWH 12pm 4am 25
  25. 25. How to price the power? The base cost is: The cost of site preparation, construction, manufacturing, commissioning, financing and dismantlement of a power plant The operating cost of the plant, including fuel cost External costs 26
  26. 26. How to price the power? However, many power plants produce much less power than their rated capacity Some power plants produce much less power than their rated capacity because they use intermittent energy sources Operators try to pull maximum available power from such power plants, because their marginal cost is practically zero, but their available power varies widely, e.g. it can be zero during heavy storms at night In other cases operators deliberately produce less power for economical reasons The cost of fuel to run a load following power plant may be relatively high, and the cost of fuel to run a peaking power plant is even higher. Operators keep power plants turned off ("operational reserve") or running at minimum fuel consumption ("spinning reserve") most of the time Operators feed more fuel into load following power plants only when the demand rises above what lower- cost plants (i.e., intermittent and base load plants) can produce, and then feed more fuel into peaking power plants only when the demand rises faster than the load following power plants can follow. 27
  27. 27. Trading pattern During the day, power producers  Analyze the market, the risks, the weather conditions, fuel price changes, political situations, etc.  Assess the sales, the production versus the day profile based on historical data  Buy power or sell exceeding production  On scheduling cut off, they need to send a schedule of power production and injection into the grid with a granularity of up to 1 minute for the next day  They need to book capacity on the grid, via transport deals, to be able to deliver the power The last 10 minutes before cut off witnesses a high trading with the highest price, in order for each producer to balance his schedule. 28
  28. 28. What if the scheduling failed? If one operator’s scheduling fails, all the grid will be impacted, and thus all European clients. 29 A wrong prediction results in financial penalty for the first two times, and a ban from using the TSO grid after the third error
  29. 29. Recycling Nuclear energy What if the demand drops below the nuclear base production? The exceeding energy is used to pump water for the hydroelectric plants, allowing the production of green energy Each power producer is obliged to produce a certain percentage of green energy Demand The missing part is purchased from the market 30
  30. 30. Gas Trading Whenever a fluctuation requires instant power, gas turbine are put into contribution. Therefore gas trading is essential for power producers. • Gas state • Compressible (this gives advantages and disadvantages) • Dissipating: losses must be taken into account • Storability • Natural gas can be stored (at cost) • Pricing of gas contracts • Historically (long term contracts) are derived from an “alternative fuel” perspective, and therefore are oil linked • For short term deals, demand is mostly driven by weather conditions and power generation needs, and therefore the pricing is more power linked • Furthermore, political and social situations impact the gas price. • Physical routes with underlying “capacity” trades, freight, interconnections between power grids and gas transport through pipes need to be taken into consideration. 31
  31. 31. Emissions Trading  Certificates were created to highlight “environment quality” in industrial production, and the desire to reduce emissions in an economically optimal way  Governments require that the production is the least harmful for the environment, which is translated in a requirement to be “long” in “environmental goodness”. A certificate (for CO2, NOx or the type of origin of electricity) is a proof of “goodness”  Economic actors consume “goodness” by polluting, and create it by an environmental friendly activity  The validity of certificates is limited  In case of shortage, actors have to buy back “goodness” in an open market. This mechanism is intended to be price driving  The intention is that over time, the number of available certificates is reduced, thereby making it more difficult to be “good” and hence more expensive to be polluting 32
  32. 32. Risk Management Pricing is closely linked to Risk Management. Higher risk, means higher margin and higher price. In addition to the classic volatility and simulations, two reports are very important for the power pricing: • VaR • PaR 33
  33. 33. VaR and PaR  The Value at Risk – VaR: It is used to inject a set of random data (deterministic, historical or Monte- Carlo) into a simulation engine to assess the value when this risk occurs. In other words, the VaR allows the producer to calculate the probability and amount of loss if a certain risk occurs within a determined timeframe. It allows the operator to set the right price to sell/buy power, gas and emissions.  The Profit at Risk – PaR: It is used to calculate the impact of certain set of input data over a long period of time It allows the calculation of profit if the risk or issue persists for long 34
  34. 34. VaR and PaR Value at Risk is measured in three variables: • the amount of potential loss • the probability of that amount of loss • the time frame For example, a power operator may determine that it has a 5% one day value at risk of $100 million. This means that there is a 5% chance that the operator could lose more than $100 million in any given day. Therefore, a $100 million loss should be expected to occur once every 20 day. 35
  35. 35. Comparative Numbers / Lebanon Technology Region or Country At 10% discount rate At 5% discount rate Nuclear Europe 8.3-13.7 5.0-8.2 China 4.4-5.5 3.0-3.6 Black coal with CCS Europe 11.0 8.5 Brown coal with CCS Europe 9.5-14.3 6.8-9.3 CCGT with CCS Europe 11.8 9.8 Large hydro-electric Europe 14.0-45.9 7.4-23.1 China: 3 Gorges 5.2 2.9 China: other 2.3-3.3 1.2-1.7 Onshore wind Europe 12.2-23.0 9.0-14.6 China 7.2-12.6 5.1-8.9 Offshore wind Europe 18.7-26.1 13.8-18.8 Solar photovoltaic Europe 38.8-61.6 28.7-41.0 China 18.7-28.3 12.3-18.6 Cost of KWh in Lebanon: Lowest : 0.02US Cent/kWh Highest: 0.13 US Cent/kWh Actual Costs of Electricity (US cents/kWh) 36
  36. 36. Comparative Numbers / Lebanon 37
  37. 37. Comparative Numbers / Lebanon 38
  38. 38. Comparative Numbers / Lebanon 39
  39. 39. Comparative Numbers / Lebanon 800MWh Nuclear 4th generation 3MWh Wind turbine 450MWh SolarHydro 2GWh2GWh Coal 3rd generation Gas 700MWh 600MWh PV 800MWh Fuel Oil 1GWh 2GWh Zouk Thermal Powerplant (3*145 + 175) 610MWh Total Theoretical Production 220 MWh - hydro 2038 MWh – fossil fuel Market Need – approx. ~2500 MWh LEBANON 40
  40. 40. 41
  41. 41. 42
  42. 42. 43
  43. 43. • IEA • EDL • EDF • Carboun • Alpiq • Statkraft • Bloomberg • PWC • Cap Gemini • World Nuclear Association • US Energy Information Administration • Murex Credits – data source and pictures 44

×