Course description
Practical Portfolio and Risk Management for Utilities is a two-day VIRTUAL instructor-led course presented by the energy training experts at Mennta Energy Solutions. This is an intermediate course on gas and power hedging and risk management for utilities in an applied context.
The course will enable participants to gain a practical working knowledge of portfolio management for utility portfolios in the context of market and volumetric risk due to variability in loads, renewable generation (hydro, wind, solar) and operational risks.
The course will present how to use simulations and scenarios to measure and manage material risk metrics for the portfolio and design optimal hedge portfolios.
We will present new approaches to hedge energy exposures with derivatives as well as useful techniques to unbundle gas and power structures in long term contracts and physical assets. Particular emphasis is placed on the use of derivatives in the context of managing net positions including physical assets, physical contracts and hedge instruments.
Delegates will gain a practical understanding of the various dimensions of risk for utilities active in gas and power markets and the various tools to manage and transfer those risks.
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Content
Meaningful Risk Metrics for Utilities
- Sources on uncertainty in utility portfolios
- Integrated Risk Management for Physical transactions
- Understanding and interpreting “at-Risk” measures, Value at Risk, Earnings at Risk (EaR), Cash Flow at Risk (CFaR)
- Limitations of Mark-to-Market, Current Exposures and Value at Risk for utility portfolios
- Key differences between Value and Flow metrics
- Anticipating potential collateral and margin needs. Introduction to Collateral at Risk.
- Sensitivity analysis and Stress Tests
Simulation Concepts for Physical and Financial Portfolios
- Spot prices: Geometric Brownian Motion and GBM with Mean Reversion
- Market price simulations: Day-ahead, hourly and subhourly
- Forward Curve Simulations with Multi-factor models
- Weather Simulations
- Load Simulations
- Hydro, Wind and Solar Simulations
- Meaningful Uncertainty
- Validation Tests
Real options and Physical Assets
- Typology of Real Options
- Optimization and Monetization Strategies
- Standard vs. Real Options
- Locational basis relationships in gas and power markets
- Pipeline capacity
- Congestion Revenue Rights (CRR) and Financial Transmission Rights (FTR)
- Convergence trades in CAISO (day head vs. real time)
- Natural Gas Storage
- Power generation and dispatch optionality
- Battery Storage and Renewable Generation
Best Practices for Risk and Trading Policies
- Front, Middle and Back office Roles and Responsibilities
- The role of risk governance and risk culture
- Trading controls for utility wholesale market operations
- Limit structure: Volumetric, Net Open Positions vs. risk-based hedges
- Position Management for portfolios with assets, physical contracts and financial instruments
- Designing effective position and risk reports
- Risk-based Limits and Optimal Hedges
Volumetric Risk for Utilities: Supply Portfolio
- Key sources of volume risk in supply portfolios
- Renewable generation and impact on power markets
- Volumetric risk and Operational Risk
- Case study: Curtailment risk for renewables
- Possible problems when hedging physical exposures with financial forwards
- Excel example: Joint simulation of price and generation risk and impact on hedging strategy
- Unplanned Outage Insurance
- Battery storage as a hedge instrument for utilities portfolios
Volumetric Risk for Utilities: Load Serving Obligations
- Key sources of volume risk in load serving entities
- Understanding shape risk
- Problems when hedging physical exposures with block contracts (on peak/off peak)
- Renewable penetration and net loads
- Covid-19 and impact on load forecasts
- Hedging Volumetric Risk: Weather Derivatives and Multiple-trigger contracts
- Excel example: Joint simulation of price and load risk and impact on hedging strategy
- Battery storage as a hedge instrument for utilities portfolios
Counterparty Risk Management
- Counterparty Credit Policy
- Guidelines to qualify suppliers and counterparties
- Monitoring and reporting counterparty exposures
- Credit Risk Measurement and Management: Netting, Collateral and Credit Triggers
- Current Exposure and Walk Forward Analysis
- Credit Exposures and Potential Future Exposure Modeling
- Case study: Uses of PFE in risk reports
Comprehensive Case Study: Portfolio Management and Hedging for a Utility in the Pacific Northwest during 2019 and 2020
- Description of utility portfolio and key sources of uncertainty
- Risk Management Goals
- Wholesale Revenue at Risk: Budgets, Actuals and Projected Net Revenues
- Budget vs. Actual revenues. Attribution reports.
- Mark-to-market reports
- Counterparty risk reports
- Important developments: Hydro conditions, Forward Market Developments, Impact of Covid-19 on Net Revenues for different quarters