Managing Energy Risk

An overview of today's energy markets from a multi-commodity
perspective

As global warming takes center stage in the public and private
sectors, new debates on the future of energy markets and
electricity generation have emerged around the world. The Second
Edition of Managing Energy Risk has been updated to reflect
the latest products, approaches, and energy market evolution. A
full 30% of the content accounts for changes that have occurred
since the publication of the first edition. Practitioners will
appreciate this contemporary approach to energy and the
comprehensive information on recent market influences.

A new chapter is devoted to the growing importance of renewable
energy sources, related subsidy schemes and their impact on energy
markets. Carbon emissions certificates, post-Fukushima market
shifts, and improvements in renewable energy generation are all
included.

Further, due to the unprecedented growth in shale gas production
in recent years, a significant amount of material on gas markets
has been added in this edition. Managing Energy Risk is now
a complete guide to both gas and electricity markets, and
gas-specific models like gas storage and swing contracts are given
their due.

The unique, practical approach to energy trading includes a
comprehensive explanation of the interactions and relations between
all energy commodities.

• Thoroughly revised to reflect recent changes in renewable
  energy, impacts of the financial crisis, and market fluctuations in
  the wake of Fukushima

• Emphasizes both electricity and gas, with all-new gas valuation
  models and a thorough description of the gas market

• Written by a team of authors with theoretical and practical
  expertise, blending mathematical finance and technical
  optimization

• Covers developments in the European Union Emissions Trading
  Scheme, as well as coal, oil, natural gas, and renewables

The latest developments in gas and power markets have
demonstrated the growing importance of energy risk management for
utility companies and energy intensive industry. By combining
energy economics models and financial engineering, Managing
Energy Risk delivers a balanced perspective that captures the
nuances in the exciting world of energy.

Autorentext

DR MARKUS BURGER ­(Karlsruhe, Germany) is Director of Risk Manage­ment 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 res­ponsible 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.

Zusammenfassung
An overview of today's energy markets from a multi-commodity perspective As global warming takes center stage in the public and private sectors, new debates on the future of energy markets and electricity generation have emerged around the world. The Second Edition of Managing Energy Risk has been updated to reflect the latest products, approaches, and energy market evolution. A full 30% of the content accounts for changes that have occurred since the publication of the first edition. Practitioners will appreciate this contemporary approach to energy and the comprehensive information on recent market influences.

A new chapter is devoted to the growing importance of renewable energy sources, related subsidy schemes and their impact on energy markets. Carbon emissions certificates, post-Fukushima market shifts, and improvements in renewable energy generation are all included.

Further, due to the unprecedented growth in shale gas production in recent years, a significant amount of material on gas markets has been added in this edition. Managing Energy Risk is now a complete guide to both gas and electricity markets, and gas-specific models like gas storage and swing contracts are given their due.

The unique, practical approach to energy trading includes a comprehensive explanation of the interactions and relations between all energy commodities.

• Thoroughly revised to reflect recent changes in renewable energy, impacts of the financial crisis, and market fluctuations in the wake of Fukushima
• Emphasizes both electricity and gas, with all-new gas valuation models and a thorough description of the gas market
• Written by a team of authors with theoretical and practical expertise, blending mathematical finance and technical optimization
• Covers developments in the European Union Emissions Trading Scheme, as well as coal, oil, natural gas, and renewables
  The latest developments in gas and power markets have demonstrated the growing importance of energy risk management for utility companies and energy intensive industry. By combining energy economics models and financial engineering, Managing Energy Risk delivers a balanced perspective that captures the nuances in the exciting world of energy.

Inhalt

Preface xi

Acknowledgements xiii

1 Energy Markets 1

1.1 Energy Trading 3

1.1.1 Spot Market 3

1.1.2 Forwards and Futures 4

1.1.3 Commodity Swaps 6

1.1.4 Options 6

1.1.5 Delivery Terms 6

1.2 The Oil Market 7

1.2.1 Consumption, Production and Reserves 7

1.2.2 Crude Oil Trading 10

1.2.3 Refined Oil Products 11

1.3 The Natural Gas Market 12

1.3.1 Consumption, Production and Reserves 13

1.3.2 Natural Gas Trading 15

1.3.3 Liquefied Natural Gas 19

1.4 The Coal Market 21

1.4.1 Consumption, Production and Reserves 21

1.4.2 Coal Trading 23

1.4.3 Freight 26

1.5 The Electricity Market 27

1.5.1 Consumption and Production 27

1.5.2 Electricity Trading 31

1.5.3 Electricity Exchanges 38

1.6 The Emissions Market 42

1.6.1 Kyoto Protocol 42

1.6.2 EU Emissions Trading Scheme 45

1.6.3 Flexible Mechanisms 46

1.6.4 Products and Marketplaces 48

1.6.5 Other Emissions Trading Schemes 51

2 Renewable Energy 55

2.1 The Role of Renewable Energy in Electricity Generation 55

2.1.1 Historical Development 55

2.1.2 Political Targets 58

2.1.3 Forecasts 59

2.2 The Role of Liquid Biofuels in the Transportation Sector 60

2.3 Renewable Energy Technologies 61

2.3.1 Hydropower 61

2.3.2 Wind Power 66

2.3.3 Solar Energy 69

2.3.4 Geothermal Energy 71

2.3.5 Bioenergy 73

2.3.6 Not Widespread Renewable Energies 77

2.4 Support Schemes for Renewable Energy 78

2.4.1 Feed-In Tariffs 80

2.4.2 Net Metering 83

2.4.3 Electric Utility Quota Obligations and Tradable Certificates 83

2.4.4 Auctions 85

2.4.5 Subsidies, Investment Grants and Tax Benefits 86

2.5 Key Economic Factors of Renewable Energy Projects 87

2.5.1 The Project Developer's Perspective 87

2.5.2 The Project Investor's Perspective 88

2.6 Risks in Renewable Energy Projects and their Mitigation 90

2.6.1 Project Development Risks 90

2.6.2 Construction Risks 93

2.6.3 Resource Risks 93

2.6.4 Technical Risks 96

2.6.5 Market Risks 97

2.6.6 Regulatory Risks 99

2.6.7 Other Operational Risks 100

3 Risk Management 101

3.…