Energy One Limited · ASX:EOL
Energy One — Weather and Forced Outage Product Education Session (November 2022)
22 slides from Energy One's conference presentation, November 2022
Slide 1: Weather and Forced Outage Product Education Session
Weather and Forced Outage Product Education Session November 2022
Slide 2: Disclaimer
Disclaimer This document/presentation was prepared for educational and information purposes only. It is incomplete without reference to and should be viewed solely in conjunction with any oral briefing provided by CQ Energy. The information in this document/presentation is based upon external client
Slide 3: Who we are/Australia
Who we are/Australia CQ Energy are part of the EOL group have worked as brokers in the Australian power markets since 2008 CQ/RSI are a specialist joint venture group focussed on broking weather and forced outage products and synthetic PPA’s In their role as brokers in Australia CQ/RSI help th
Slide 4: European context
European context We understand the larger utilities have traditionally purchased weather products Their focus has previously been on managing warm winter risk to manage loss of revenue related to retail gas customers Due to recent events buyers have reverted to managing cold winter and commodi
Slide 5: Weather Products - What are they in concept
Weather Products - What are they in concept Products to manage weather risks were developed by Enron in the 1990s Applicable across any industry or commodity where revenue/price outcomes are influenced by weather Structures include some form of weather event which must occur to potentially tri
Slide 6: Many industry sectors have exposure to weather
Many industry sectors have exposure to weather Industry Weather Risks Revenue Risk from Warm Winter Natural Gas Utilities/ Retail Providers Supply Price Risk from Cold Winter Revenue Risk from Warm Winter/ Cold Summer Electric Utilities/ Retail Providers/ Power Plant Supply Price Risk from Cold Wint
Slide 7: Who sells them
Who sells them Sellers of these products are typically large re-insurance companies or private equity funds where they are looking for diversity away from their core business (i.e. events in the weather markets are non-correlated with say earthquakes, hurricanes or share market outcomes) There i
Slide 8: Essential ingredients of weather hedging
Essential ingredients of weather hedging
Slide 9: Winter and Summer Example Structures
Winter and Summer Example Structures Customer concern Product offers Natural gas distributors & retailers Warm winter: not selling enough “Volumetric hedge” – pays client if gas to meet expected return on winter is warm (low sales), using capital and potentially too much weather-only products AND/OR
Slide 10: Combining volumetric risk and price risk
Combining volumetric risk and price risk I. II. Benefit of Protection Against high High Price /Warm High Price /Cold Weather Weather Low Correlation High Correlation Less Valuable More Valuable Price III. IV. Protection Against Benefit of Low Price /Warm Low Price /Cold Weather Weather High Correlat
Slide 11: Fixed Tick/HDD
Fixed Tick/HDD Structure (Cumulative HDD Victoria – Non-Linear Put) Weather Reference: Moorabbin Airport published by BOM (station 086077) Temp Definition: Heating Degree Day (HDD) – 18C Ave Temp Index Risk Period: 1 June 2023 to 31 August 2023 Type: Buyer Put Option Trigger: Cumulative sum of HDD o
Slide 12: Quantos
Quantos Structure (Extreme Temperature) Product: Weather Contingent Price Cap Weather Station: Bankstown (066137) Weather Strike: >=39.0C Daily TMax Risk Period: 1 January 2023 to 31 March 2023 Period: All hours Notional Quantity: 50MW Price Variable: New South Wales Five-Minute RRP Price Strike: $3
Slide 13: Precipitation
Precipitation Structure (Put on Precipitation) Term: 1 January 2023 to 31 December 2023 Weather Station(s): Albury (072160) Benalla (082170) Falls Creek (083084) Hunters Hill (082139) Mount Buller (083024) Mount Hotham (083085) Weather Index (mean): 0.84 * Albury 0.62 * Benalla 1.62 * Falls Creek 1.
Slide 14: Wind
Wind Structure (Put on Lack of Wind) Term: 1 January 2023 to 31 December 2023 Wind Data: Hourly wind speed data from on-site turbines (could be satellite observations) Hourly Wind Output: Wind Data * Power Curve * Number of Turbines Hourly Wind Strike: 150 MWh (greater than P50) Tick: $100/MWh Hourl
Slide 15: Solar
Solar Structure (Put on Lack of Solar) Term: 1 January 2023 to 31 December 2023 Weather Data: Irradiance: global radiation determined by Merra 2 Production Output: Weather Data * Plant Capacity * Performance Ratio Daily Production Strike: 3,600 MWh (greater than P50) Tick: $100/MWh Daily Payout: If
Slide 16: Forced Outage Products
Forced Outage Products Patrick Bourke Director, Risk Solutions International
Slide 17: Background and recent developments
Background and recent developments The product has a history in Australia going back to 1999 Outages are a major theme at present and a large driver of volatility – in June our market had about 25% of 23GW of coal capacity simultaneously offline over several days Outages illustrate the presenc
Slide 18: Applications and buyers
Applications and buyers Cover can be used in energy or capacity markets, with the payout tailored to the particular market In derivative or insurance form, a highly rated risk-carrier provides forced outage cover in return for an upfront payment Coal and gas generation have historically been t
Slide 19: Covered events
Covered events Covered events divide into unplanned outages and unplanned deratings Definitions are then based on corresponding IEEE classes – classes 0-3 for outages and 1-3 for deratings These centre on timing and control or lack of control with mechanical breakdown being the most common cau
Slide 20: Payout and structuring
Payout and structuring The settlement or payout is determined by notional quantity and spot price (specifically spot price in excess of the strike) for each applicable trading interval, usually from the start of the event rather than being deferred Considerations for structing include: Assets
Slide 21: Addendum – IEEE definitions
Addendum – IEEE definitions A Class 0 outage represents a start-up failure – an unsuccessful attempt to place the unit in service. A Class 1 unplanned outage requires immediate removal from the existing state. A Class 2 unplanned outage does not require immediate removal from the in-service st
Slide 22: Questions/Contact
Questions/Contact Questions? For any follow up questions and enquiries please send to: energyrisk.info@energyone.com
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