Managing Energy Risk (eBook)

DR MARKUS BURGER -(Karlsruhe, Germany) is Director of Risk Manage-ment at EnBW Trading (-Energie Baden-Württemberg AG) a company specialising in -energy -trading, optimization and risk management. Markus has more than fifteen years' experience in Commodity -Trading, Finance and Risk Management. He has a PhD in mathematics from -Karlsruhe Institute of Technology (KIT). DR BERNHARD GRAEBER (Karlsruhe, Germany) is Head of Infrastructure Investments at -Talanx Asset -Management. Prior to that he was head of Renewable Energies and International -Climate Projects at EnBW AG and was res-ponsible for the coordination of all renewable -energy -activities within the EnBW group. Bernhard has a PhD in Energy Economics from Stuttgart -University. DR GERO SCHINDLMAYR (Essen, Germany) is Head of Risk Control for asset-related trading at RWE -Supply & Trading GmbH. Over the last fifteen years, Gero held various positions in the finance and energy industry in the area of quantitative modelling and risk management and is author of several -research publications. He holds a PhD in mathematics from RWTH Aachen, University of Technology.

1 Energy Markets 7

1.1 Energy Trading 9

1.2 The Oil Market 14

1.3 The Natural Gas Market 20

1.4 The Coal Market 29

1.5 The Electricity Market 35

1.6 The Emissions Market 53

2 Renewable Energy 69

2.1 The Role of Renewable Energy in Electricity Generation 70

2.2 The Role of Liquid Biofuels in the Transportation Sector 75

2.3 Renewable Energy Technologies 77

2.4 Support Schemes for Renewable Energy 96

2.5 Key Economic Factors of Renewable Energy Projects 108

2.6 Risks in Renewable Energy Projects and their Mitigation 110

3 Risk Management 125

3.1 Governance Principles and Market Regulation 126

3.2 Market Risk 128

3.3 Legal Risk 156

3.4 Credit Risk 160

3.5 Liquidity Risk 172

3.6 Operational Risk 175

4 Retail Markets 179

4.1 Interaction of Wholesale and Retail Markets 179

4.2 Retail Products 183

4.3 Sourcing 189

4.4 Load Forecasting 192

4.5 Weather Risk in Gas Retail Markets 194

4.6 Risk Premiums 201

5 Energy Derivatives 215

5.1 Forwards, Futures and Swaps 216

5.2 Commodity Forward Curves 223

5.3 "Plain Vanilla" Options 228

5.4 American, Bermudan and Asian Options 243

5.5 Multi-Underlying Options 247

5.6 Modelling Spot Prices 255

5.7 Stochastic Forward Curve Models 277

6 Stochastic Models for Electricity and Gas 283

6.1 Daily and Hourly Forward Curve Models 283

6.2 Structural Electricity Price Models 295

6.3 Structural Gas Price Models 312

7 Fundamental Market Models 333

7.1 Fundamental Price Drivers in Electricity Markets 333

7.2 Economic Power Plant Dispatch 347

7.3 Methodological Approaches 372

7.4 Relevant System Information for Electricity Market Modelling 406

7.5 Application of Electricity Market Models 413

7.6 Gas Market Models 416

7.7 Market Models for Oil, Coal, and CO2 Markets 429

7.8 Asset Investment Decisions 430

Appendix 437

A Mathematical Background 439

A.1 Econometric Methods 439

A.2 Stochastic Processes 448

A.3 Option Pricing Theory 451