Euromoney Energy Training

A 4 day comprehensive training course designed to provide you with an understanding of the following:

• Different valuation techniques
• Qualitative factors affecting valuations
• Quantitative factors affecting valuations
• How to apply the appropriate valuation technique(s), including financial modelling using Excel

Forward Pricing Risk Management in Electricity Generation Course Background

Forward pricing and valuation in electricity generation is a four day intensive, technical hands-on course in which attendees receive comprehensive instruction on the theory and practice of making price forecasts and assessing risk in the electricity generating industry.

After discussion of electricity markets around the world, the course moves to programming and model structuring, where attendees follow the lead of the instructor in building various analyses of forward pricing and valuation issues.

Exercises include analysis of supply and demand, modelling of capacity mix and capacity level optimisation; construction of time series analysis for fuel  prices loads and hydro generation; and, project finance analysis of merchant plant investments.

As the course progresses, attendees apply risk assessment, option pricing, and valuation techniques in real world cases using an integrated model. In addition to building their own models, participants learn how to use fully developed models that incorporate sophisticated debt structuring, break-even analysis, contract pricing, time series equations and Monte Carlo simulation.

DAY ONE

Overview of risk analysis and forward pricing

• Problems with de-regulated and regulated markets
  – Financial meltdown since 2002 in Argentina, UK and US
  – California crisis – market power
  – California crisis – supply adequacy
       – UK – market power

• Problems with regulation and state ownership
  – Regulation of private firms and market to book ratios
  – Contracts with independent power producers
  – State ownership

 Power supply theory and analysis

• Screening analysis
  – Carrying charge analysis
  – Capacity factor
  – Optimal capacity mix

• Optimal capacity and marginal cost
  – Short-term marginal cost
  – Long-term marginal cost

DAY TWO

Energy markets theory and analysis

• Supply curve
• Hourly demand analysis
• Average and marginal heat rates

Case exercise:
– Construction of supply curve
– Simulation of market prices
– Volatility in prices from alternative supply and demand

Capacity price theory

• Definition of capacity markets
• Capacity additions and capacity pricing
• Value of lost load
• Interruptible rates

Capacity price analysis

• Loss of load probability exercise
  – Simple case
  – With volatile demand
• Computation of capacity prices under different models
  – Peaker method
  – Required capacity price from existing capacity
  – Cost of customer outage

DAY THREE

Transmission – theory

• Cost of transmission constraints
• Locational based pricing
• Transmission construction

Transmission – analysis

• Value of transmission
  – Simple supply and demand case with two regions in a single hour
  – Case with added regions
  – Case with added hours
  – Case with new transmission construction

Renewable and DSM case study

• Energy value of alternative resources
• Capacity value of resources
  – Loss of load probability
  – Administrative methods
• Environmental externalities

DAY FOUR

Financial analysis

• Project finance
  – Required returns
  – Debt service coverage and debt capacity
  – Project finance modelling
  – Risk transfers in PPA agreement
• Corporate finance
  – Required return
  – CAPM and DCF model
  – Cost of debt
  – Risk measurement of different resources

Case study:
– Method for determining optimal resource
– Risks of different alternatives

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

Forward Pricing Risk Management in Electricity Generation - Paris