Course overview Over an intensive 3 days a top energy specialist will offer a comprehensive overview of the creation, sale and risk-management of structured products in energy. The course will detail how to develop effective structures that offer high added value to counterparties with complex needs, using both traditional and new contractual vehicles. Real options, embedded options and the use of formal derivatives will be explained, together with the creation of synthetic or ‘virtual’ solutions to customers’ requirements. Emphasis will be given to how these solutions can be developed and delivered in a closely risk-managed framework, in terms of valuation, pricing & contracting, and organization & governance. Practical exercises will confirm the principles being explained.
Course Methodology
This practical hands-on programme is taught using formal lectures practical exercises and illustrations, based on real-life case studies . The course is highly interactive, and will encourage delegates’ participation and group discussions.
Who should attend?
· Energy-market origination staff
· Structuring staff
· Energy product analysts
· Energy marketing staff
· Middle and back office personnel
· CFOs and Treasury managers
· Finance department personnel
· Compliance managers
· Risk and audit committee members
Day 1: Basics of Developing & Selling Structured Energy Products
Introduction to Structured Products in Gas & Power
• background
• pre- and post- trading in markets
• decline of long-term contracts
• IPPs and the rise of new structures
Value of Structured Products in Energy
• needs of utilities
• needs of producers
• needs of industrials
• nature & scale of risks in energy
• addressing complex volumetric risk
‘Traditional’ Structures
• the pre-trading market paradigm
• proto-risk management before financial tools
• gas sales agreements
• power purchase agreements
• tolling agreements
• concept of ‘real options’ & embedded options
Exercises: identifying real & embedded options in long term agreements
Introduction to Energy Derivatives
• the deconstruction theorem
• forwards & swaps
• options, conventional & complex
• significance of the physical in energy (1)
• role of spreads in energy
• basis risk in energy
Analysing Energy Derivative Transactions
• block-and-arrow diagrams
• pay-off diagrams
Exercises: using analytic tools in energy transactions
Using Derivatives for Structuring
• virtual / synthetic products
• energy assets as call-options on spreads
Exercises: synthetic replication of energy assets; the virtual power plant
Day 2: Synthetic Energy Products & Risk Management
Introduction to Systematic Energy Risk Analysis
• basic risk classes
• complex energy risks
• volumetric risk: unique to energy
Exercise: assessing risk profiles of synthetics vs physical assets
Basics of energy risk management
• the traded market paradigm
• the 3 paradigms of financial risk management
• integrating the 3 paradigms
• the ‘At-Risk’ concept
Exercises: applying the 3 paradigms in variable market conditions
Measuring risk
• understanding exposure
• measuring exposure: ‘delta’
• significance of the physical in energy (2)
Exercises: identifying exposures in energy contracts
Pricing risk
• extending the At-Risk concept
• Value at Risk
• risk capital
• the cost of carrying risk
Valuing & Pricing Structured Products
• the market as measure
• mark-to-market concepts
• cost and risk management
• full-cycle deal pricing
• options & the danger of mis-pricing
Exercises: components of deal pricing
Day 3: Developing, Delivering & Risk-Managing Structured Energy Products
Introduction to Risk Governance
• Best Practices for risk governance
• Risk Policy & organizational requirements
• risk control & functional independence
• risk identification
• risk management & limits
• risk reporting
Exercises: devising limits and Policy components
Selling & Delivering Structured Energy Products
• the potential for adding value & high margins
• structuring for customers’ needs
• restructuring legacy contracts
• identifying exposure in complex portfolios
• embedded products in structured deals
• the importance of Credit Risk
• the paradox of selling optionality
Organising for Effective Delivery and Management of Structured Products
• skill-sets
• the Origination function
• the Structuring & pricing function
• the importance of physicals in energy
• role of trading
• the Prompt function
• organization & culture
• integration of Risk Management
Practical Risk Management for Structured Products
• accounting issues
• contract doctrine
• risk warehousing
• structured products in transitional markets
Conclusions
• integrating the full suite of concepts & principles
• risk management as a positive discipline for adding value
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Nick Perry
Nick Perry has worked exclusively in the oil, gas and power markets since the earliest days of market liberalisation, in the UK, Europe, the USA and Russia. He specialises in risk management, complex deal origination and portfolio structuring.
After serving as a Board Director of Enron Europe, in 1997 he was a founder-shareholder and Senior VP of Caminus Corp, a provider of risk management consulting and software that floated on the NASDAQ in 2000. Since leaving Caminus two years later he has consulted widely on risk and structuring for energy companies, large energy buyers, governments and regulators.
He has written and spoken widely on energy topics, and in 2001 was jointly awarded Energy Risk Magazine’s Innovation award for his work on complex gas options.
In 2005 he conducted an inquiry for the UK Department of Trade and Industry into the extreme price movements in the UK gas and electricity forward markets: his Report is a standard text in regulatory agencies and widely quoted in academic studies.
Energy Derivatives
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This course has now expired please email us to find out when the course will next be running.