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How RWE nPower Energised Their Energy Management

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How RWE nPower Energised Their Energy Management

  1. 1. npower’s Energy Journey How we energised our energy management
  2. 2. Contents ▲ Where did we start ▲ Where we are now ▲ How we did it ▲ Building on the basics and going forward ▲ Summary of savings
  3. 3. Performance Indicator 2010 Outturn Value Compared to 2009 npower energy usage 61.0 GWh 7.2% Total energy spend £5.55m 7.8% CO2 produced 28,800 Tonnes 7.5% # Sites not supplied by npower 14 No Change Electricity Price npower 2010 – £91.00/MWh (Retail price No VAT) The beginning − 2010 09
  4. 4. Performance Indicator 2015 End of Year Forecast Compared to 2010 npower energy usage 31.5 GWh -48% Total energy spend £3.33m -40% CO2 produced 14,600 Tonnes -49% # Sites not supplied by npower 0 -100% Electricity Price npower 2015 – £105.57/MWh (Retail price No VAT) Where we are now – 2015
  5. 5. How did the Sustainability team achieve this?
  6. 6. Forecasting Measure Targeting Controlled Energy Budget SingleGroup AccountMinimise Monitor AMR ISO50001 EASY Management Systems Monthly Report Year on year comparison Flex Purchasing Carbon intensity target Sub-metering CO2 Reduction Encompass Ska Gold Refits New Equipment Audits Benchmarking
  7. 7. ▲ Monthly comparison and communication of energy spend against budget. ▲ Comparisons of year on year energy reduction by sites. ▲ AMR & sub-metering ensures accurate data. and has been installed across the entire portfolio. ▲ Collaborating with the optimisation desk to forecast site specific consumption and cost. ▲ Targeting using benchmarks e.g. 2008 CRC Committee carbon intensity reduction target of 50% reduction by end of 2015 (Currently at 56.13%) ▲ Future possibility of rating each segment of the business by their energy consumption. Business area Total billed year to date (exc VAT) Budget year to date (exc VAT) Difference Electricity Corp Gen and Ren £355,848.90 £377,162 -£21,313 Retail £754,708.88 £783,573 -£28,864 £1,110,557.78 £1,160,735 -£50,177 Gas Corp Gen and Ren £43,359 £69,556 -£26,196 Retail £53,997 £119,108 -£65,111 £97,356.86 £188,664 -£91,307 £1,207,914.64 £1,349,399 -£141,484 Site MPAN Jan Feb Mar Swindon – Trigonos 2000027385659 -9% -8% -5% Worcester – Oak House 1410627113007 -20% -21% -16% Oldbury – Birchfield House 1414236103000 -5% -2% -30% Oldbury – Birch House 1410705013000 -10% -15% -25% Solihull – Princes Way 1419570413007 -9% -15% -43% Worcester – Acorn House 1413056013004 -5% -5% -18% Peterlee – Tyne House 1507889210116 -12% -7% -5% Kingswinford – Larch House UPS 1424340100003 -15% -15% -35% Leeds – Limewood House 2300001075238 -8% -15% -25% Leeds – Scarcroft House 2300001080655 -17% -6% -14% Hull – Bridge House 2390000004330 -13% -19% -43% Thornaby – Phoenix House 1599001010597 -11% -3% -14% Peterlee – Tees House 1580000269492 -10% -12% -38% Taking control − three easy steps to drive performance
  8. 8. ▲ Encompass, AMR and sub-meters work together to empower the energy manager and facilities. ▲ Building Management systems are centralised and optimised from data analysis. ▲ Site audits can focus on specific issues already identified. ▲ We have also acquired and implemented the prestigious ISO 50001 Energy Management System to ensure effective energy monitoring & were the first of the ‘Big 6’ to achieve this.
  9. 9. ▲ The SKA system is used for all major site refits, npower is currently UK and World leader with 7 Gold awards. ▲ System ensures all refits are conducted in a sustainable and energy efficient way at no additional cost. ▲ It includes a list of recommended energy efficient technologies. ▲ If this is adhered to and refits are conducted in an innovative way then a Ska standard can be awarded – we achieve the Gold standard on all our refits. ▲ Benefits include an enhanced capital allowance and a brilliant place to work. ▲ Energy Performance contracts trialled.
  10. 10. ▲ State of the art UPS systems installed in Limewood House and Rainton House ▲ Fantastic energy savings from PIRs, LED lighting installations ▲ Voltage optimisation at 11 major sites. ▲ Smart STOR generators to generate revenue and reduce TNUoS charges through the npower TRIAD prediction service. ▲ Using the EASY initiative (Environment, Action, Sustainability, You) to engage the workforce, empower individuals and unify sustainable activities. Winners of the 2013 Excellence in Carbon Reduction Award
  11. 11. Building on the basics ▲ Flexible Purchasing ▲ By combining our site supplies into one group account we took advantage of npower’s flex contract, whilst being the first ever customer allowing us to test the contracts and strategy setting. ▲ In 2013 we saw a 12% (£297,225) saving against an equivalent fixed-contract energy price. 45 47 49 51 53 55 57 59 61 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 RWE npower fixed v. flex cost (£/MWh) Fixed Contract Price @ 31/08/2011 (£/MWh) Market Average for Strategy (£/MWh) npower Flex Price (£/MWh)
  12. 12. Building on the basics ▲ Leading The Way In Princes Way ▲ Ska Gold rated refit including the Energy Innovation Centre – 3rd floor A-block. ▲ 44MWh generated by Solar PV at Princes Way – enough to power the site for two weeks. ▲ STOR generation at site capable of net export during peak times with a second generator currently being fitted. ▲ Sub-metering with AMR installed to better understand energy consumption. ▲ This has resulted in a brilliant place to work and to show our customers how an energy company manages it’s energy. ▲ Total income from wind, solar and STOR in excess of £175k p.a.
  13. 13. Across RWE Group UK Driving performance with the CRC Energy Efficiency Scheme & ESOS The npower Sustainability team is also responsible for managing the CRC Energy Efficiency Scheme, Carbon Trust Standard and ESOS submissions for all RWE Group companies in the UK. The team drive reductions in CO2 emissions across Trading, Generation, Energy Services and Retail arms of the company. This reduces the spend on CO2 permits, which is currently in excess of £270k at £12 per Tonne with permits going up this year. This allows us to engage customers with the success of our efficiency journey. Our ISO50001 accreditation also aids ESOS compliance & helped finalise our >70TWh ESOS submission for RWE in the UK.
  14. 14. Our next steps Driving Performance – Further refine data analysis and forecasting Challenge – Install brilliantly innovative energy solutions Focus – Develop new finance opportunities to reduce our CAPEX spend Collaboration – Work with I&C, SME and Energy Service to develop new products Customer First – Share our energy efficiency journey with I&C and SME customers Accountability – Review performance with external audits which has led to several awards Respect – Continue to respect the needs of our employees and customers.
  15. 15. To summarise Performance Indicator Savings in 2014 compared to 2010 RWE npower energy usage 30.5 GWh Total energy spend £2.22m CO2 production 14,200 Tonnes Cost of CO2 permits (£12/Tonne) £233k Total Annual Saving £2.45m (44%)
  16. 16. Appendix
  17. 17. Npower’s DBM Offering DBM Silver DBM Gold DBM Platinum Productsupport  Strategy consultation and design service  Strategy design & recommendations  No obligation for npower to deliver budget  VaR tool and mandated volumes  Can opt up to DBM Platinum during contract term  Strategy design service  Active exposure management  Npower appointed as agent to deliver the agreed strategy and guarantee a cap/floor for the commodity budget  Budget written into contract 17
  18. 18. Building a Hedging Strategy that fits your Risk Appetite  To build an effective risk management strategy we need to set risk appetites against four key parameters:  The budget level will control the degree to which you are happy to let the market move from ‘today’s’ levels in order to preserve downside opportunity. It is essentially your risk capital  The hedging window is the amount of time you wish to hedge volume for, a long period will provide greater opportunity to hit markets averages while shorter windows increase the level of fundamental understanding. The Hedge deadline determines how far in advance of delivery you wish to be 100% hedged and know your final achieved price The holding period and path flexibility control the level of flexibility afforded to trade execution in order to optimise based on market intelligence. Opportunity vs. Emotion The exposure to prompt markets – determines your contract mix. Seasons vs. Quarters vs. Months or day-ahead 18 Min Hedge Max Hedge 14% Hedged Monthly 86% Volume Hedged Before Seasonal Contract Expires
  19. 19. Setting the Budget Part of a successful risk management strategy is understanding your budget  By understanding your maximum and target commodity costs you can ensure you stay within those limits.  ‘Contracted Budgets’ will ensure you lock in wholesale prices before they rise too far.  Our systems will be configured to provide warnings based on observed volatility and VAR in a single day.  Budgets can be set at contract level or broken down seasonally.  ‘Target Price Levels’ allow you to close out positions to secure lower wholesale rates in case they rise again  These don’t have to be set if you do not want to limit potential gains. 19 The DBM Platinum product contractually guarantees you will not fall below your commodity budget Target Price Level Contracted Budget Current market Risk Capital Active Management  Budget price = forward market + volatility allowance  Summer 2016 Baseload = £40/MWh  Volatility allowance = 10%  Budget = £45/MWh * 110% = £44/MWh Close out to limit upside risk Close out to lock in profits
  20. 20. The optimisation desk’s approach combines fundamental analysis with risk analytics to best execute the hedge path within the tolerance limits set out and guaranteed within the strategy.  The desk develops a structured approach to hedging based around an average hedge path which is determined by hedging window and the deadline to become fully hedged  The longer the hedging window the greater opportunity to ensure that a contracts market average can be achieved. Statistically speaking you increase the sample size to achieve a more reliable mean  Depending on your business requirements you may require achieved commodity costs in advance of the actual commodity delivery and therefore there is flexibility to bring forward the hedging deadline  A degree of tolerance is beneficial in order to provide the flexibility to acceralate or decelerate hedging in order to take advantage of bullish or bearish runs, respectively Hedged Volume 20 Time Exposure Average Hedge Path Tolerance Example hedge profile Hedging Deadline Hedging Window  Strategies are loaded into our fully supported Oracle position management system.  Configured alongside budget and daily VaR reporting. The customer and the Optimisation Desk receive daily position emails, VaR and P&L reports alongside market updates and analysis.  This flexibility to deviate long/short against an average profile has helped import customers take full advantage of the recent bearish trends through 2015 while saving the bacon for export customers given their long hedge profile and ability to accelerate Setting the Hedge Path Profile
  21. 21. 21 Strategy Item High Medium Low Seasonal Hedging 50% 70% 90% Prompt Hedging 50% 30% 10% Min/Max Volume 10MW 6MW 3MW Budget Level 15% 10% 5% Holding Period 6 months 3 months 1 month Hedge Window 1 years 1.5 years 2 years Strategy Risk Level Selecting the Right Contract Mix – 2014 DBM Performance Optimisation Desk Performance 2014  The full benefit of the Optimisation Desk hedge performance passed onto the customer.  Absolute DBM 2014 P&L - £850k  Value delivered of nearly £4/MWh  DBM RORAC – 42% Price quality across the portfolio contributes to P&L  73% of DBM customer trades inside spread  In 2014 customer shown full benefit of £0.12/MWh
  22. 22. Hedging Strategy – Risk Metrics  P&L measurement typically includes … analysing changes in portfolio value due to movements in the forward curve … but could include performance vs. market average or budget, price quality vs. spread etc.  Value at Risk measures the potential loss in portfolio value … at a user-configured probability (usually 95th percentile = 1/20 worst case) … using observed market volatility … and random sampling of potential prices  Return on risk adjusted capital compares P&L to VaR enabling us to assess performance against risked capital … calculate potential losses (anything to the left of the 50th percentile) up to the 95th percentile … work out the difference between P50 and P95 (the amount of £ risked that results in a loss) … and dividing P&L by the risked capital - typical levels are ~20%  Wholesale market liquidity and spread analytics alongside netting opportunities Is +£10k P&L risking £100k better than +£5k risking £20k? 22 Bespoke Reports to Suit Risk Analytics Available

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