Asset Optimisation and Trading

Harald von Heyden

Head of Business Division Asset Optimisation and Trading
Stockholm, 21 September 2011

Todays focus
Organisation and key figures
AOT comprises four business activities
AOTs role within Vattenfall
Hedge strategy process
Hedge position
Market development and outlook

2 | Capital Markets Day, Stockholm | 21 September 2011

Organisation and key figures

Key figures:

EBITDA (2010): SEK 6,035 million (10% of Group

Total)
Trading Volume (External) 2010
FTE: 650
Electricity in TWh
1,900
Nationalities: 24+
CO (EUA and CER) in mt
430
2

Asset optimisation
Nordic

925

Counterparts

~550

Transactions per day

Asset
Optimisation
and Trading (AOT)
Asset optimisation
Europe

Gas in TWh

Trading

>1,650

Operations

Optimisation and Dispatch of Assets

Market Access

Analysis

Hedging and Hedging Strategy

Prop Trading

Models and systems

Interface to Assets

Fuel Sourcing

IT operation

Origination

AOT common processes

3 | Capital Markets Day, Stockholm | 21 September 2011

AOT comprises four main business activities

Dispatch optimisation
Maximize value of
assets in spot and
intraday markets

Asset backed
proprietary trading
Maximize value of
assets in forward
markets
- Trade on flows
incl. hedging
- Exploit physical
optionality

Non asset backed

proprietary trading
Generate profit on
back of financial risk
capital
EUR 200 million max
loss limit

Origination
Acquire & restructure contractual assets (semi-physical contracts) and other contracts

4 | Capital Markets Day, Stockholm | 21 September 2011

AOTs role within Vattenfall

Electricity and commodity markets

Asset
Optimisation
and Trading
Power

Generation

Supply of fuels

Sourcing power and gas

Sales

Hydro

Coal

B2B

Nuclear

Oil

B2C

Thermal

Gas

Renewables

CO2

5 | Capital Markets Day, Stockholm | 21 September 2011

Introducing new hedge strategy

Old hedge reference environment

primary focus on production
plans and how the volumes
should be hedged from a Business
Unit perspective
financial aspects only implicitly
represented

Identify hedge
objectives

Set guiding
thresholds

6 | Capital Markets Day, Stockholm | 21 September 2011

New hedge strategy process

financial aspects explicitly
incorporated when deciding the
hedge strategy
focus is derived from an overall Group
perspective whilst taking national level
requirements into account

Analyse/decide
hedge strategy

Implement and
review

Hedge ratios
% hedged of forecasted electricity generation, 30 June 2011
99
96
100
90
80

78

76

70
60
50
38

40

31

30
20

Nordic region

10

Continental Europe

0
2011

EUR/MWh

2012

2013

2011

2012

2013

Nordic region

45

44

45

Continental Europe

56

55

59

7 | Capital Markets Day, Stockholm | 21 September 2011

Market development and outlook

Oversupply situation in Northern Europe
Risk of market splitting and lower liquidity
- E.g. the Swedish market will be split into 4 price areas 1 November 2011
- Liquidity constraints on some local power and gas markets e.g. Netherlands,
UK and Spain
Post-Fukushima changes in German and Swiss physical market
- Will Germany become a net importer?
- Grid constrains
Increased and changed regulation
- Proposed financial regulation by the EU on e.g. transparency, market integrity,
capital requirements, MiFID and mandatory clearing

8 | Capital Markets Day, Stockholm | 21 September 2011

Appendix

9 | Capital Markets Day, Stockholm | 21 September 2011

Systemprice

Hydrological Balance

100

-50

Outlook
90

80

70

Changes in the balance will

continue to be the main
price driver going forward.
Correlation has not
changed.

-30

50

-10

40

30

20

Financial crisis 2008

pushed prices down
despite weakening
hydrology

10

A new major downturn in

the economy will surely
affect Nordic prices as
output falls.

10

20

30
okt-13

jul-13

apr-13

jan-13

okt-12

jul-12

apr-12

jan-12

okt-11

jul-11

mar-11

nov-10

jul-10

feb-10

okt-09

jun-09

jan-09

sep-08

maj-08

dec-07

aug-07

apr-07

nov-06

jul-06

mar-06

okt-05

jun-05

feb-05

okt-04

10 | Capital Markets Day, Stockholm | 21 September 2011

TWh

EUR/MWh

-40

-20

60

jun-04

System price and hydrological balance

Changes in the Nordic system price are highly correlated with

changes in hydrological balance

Systemprice

SRMCC

90

Outlook
80

With normalisation of the hydro

balance, dark spreads will be under
pressure in the Nordic region
considering the expansion of wind
and nuclear.

Could CO2 prices again edge

towards zero if the economy turns
down and output falls?

The uptrend in coal prices will be

broken if the economy turns down.
Although, support of coal prices will
remain when money flies into gold,
commodities, property (things that
retain value when money dies).

70

EUR/MWh

60

50

40

30

20

Hydbal >15 TWh

10

okt-13

jul-13

apr-13

jan-13

okt-12

aug-12

maj-12

feb-12

nov-11

aug-11

mar-11

nov-10

jul-10

mar-10

okt-09

jun-09

11 | Capital Markets Day, Stockholm | 21 September 2011

feb-09

sep-08

maj-08

jan-08

aug-07

apr-07

dec-06

aug-06

mar-06

nov-05

jul-05

System price and marginal cost of coal

Marginal cost of coal acts as support to the Nordic system price

- except hydrological balance is very positive

German off-peak prices provide additional support

- except hydrological balance is very positive

German Off Peak

100

Outlook
90

80

With normalisation of the hydro

balance, also the Nordic-German
off-peak spread will be under
pressure in the Nordic region
considering the expansion of wind
and nuclear.

German off-peak prices will be

supported by nuclear
decomissioning. They will also
stay strong in relation to peak
prices although considering the
expansion of solar power.

70

60
EUR/MWh

System price and German off-peak

Systemprice

50

40

30

20

10

Hydbal >15 TWh

0
okt-13

jul-13

apr-13

jan-13

okt-12

jul-12

apr-12

jan-12

okt-11

jul-11

mar-11

nov-10

jul-10

feb-10

okt-09

jun-09

jan-09

sep-08

maj-08

dec-07

aug-07

apr-07

nov-06

jul-06

mar-06

okt-05

jun-05

feb-05

12 | Capital Markets Day, Stockholm | 21 September 2011

The Nordic system price is most of the time below the German peak
- except hydro balance is extremely strained in winter*
*in combination with low nuclear availability, low temperature and precipitation.
Ge rm a n Pe a k

120

Outlook

110

More installed wind capacity in the

Nordic region will lead to higher
peak / off-peak spreads and higher
volatility in the spot prices.

Hydbal < - 30 TWh

100
90
80
70
EUR/MWh

System price and German peak

Syste m price

Potential if hydro goes

extremely negative
again?

60
50
40

Solar power expansion will put

pressure on German peak prices.

30
20
10
0

okt-13

jul-13

apr-13

jan-13

okt-12

jul-12

apr-12

jan-12

okt-11

jul-11

mar-11

nov-10

jul-10

feb-10

okt-09

jun-09

jan-09

sep-08

maj-08

dec-07

aug-07

apr-07

nov-06

jul-06

mar-06

okt-05

jun-05

feb-05

13 | Capital Markets Day, Stockholm | 21 September 2011

The German moratorium triggered a big trade balance swing

Import/Export Balance Germany (7day moving average)
8000

MW (+ Import / - Export)

6000

Offline before:
Biblis B, Krmmel
Brunsbttel

Isar 1, Philippsburg 1
Neckarwestheim 1
Unterweser, Biblis A
Grafenrheinfeld (maintenance)

4000
2000
0
-2000
-4000

Grohnde, Gundremmingen B
Philippsburg 2, Emsland

-6000
-8000
Jan

Feb

Mar
2007

Apr

Mai

2008

14 | Capital Markets Day, Stockholm | 21 September 2011

Jun
2009

Jul
2010

Aug

Sep
2011

Oct

Nov

Dec

Average (07-10)

France contributed the most with a shift of >4,000 MW

MW (+ Germany imports / - Germany exports)

Import/Export Balance Germany-France (7day moving average)

5000
4000
3000
2000
1000
0
-1000
-2000
-3000
-4000
-5000
Jan

Feb

Mar
2007

Apr

Mai

2008

15 | Capital Markets Day, Stockholm | 21 September 2011

Jun
2009

Jul
2010

Aug

Sep
2011

Oct

Nov

Dec

Average (07-10)

Highest nuclear production in France since years facilitates high exports

Nuclear Production France
440
400
360
320

TWh

280
240
200

If France sticks to the target,

a lower utilisation (~1,500MW)
would be the result for Q4

160
120
80
40
0
Jan

Feb

Mar

Apr

Mai

Estimated 2011 based on target

16 | Capital Markets Day, Stockholm | 21 September 2011

Jun

Jul
2011

Aug
2010

Sep

Oct

2009

Nov
2008

Dec
2007

Higher wind production in Germany gives relief to imports

MW (+ Germany imports / - Germany exports)

Offpeak Import/Export Balance DE-FR (7day moving average)

5000
4000
3000
2000
1000
0
-1000
-2000
-3000
-4000
-5000
Jan

Feb
2007

Mar

Apr
2008

Mai
2009

Jun

Jul

2010

Aug

Sep

2011

Wind Germany 2011 (deviation from norm)

17 | Capital Markets Day, Stockholm | 21 September 2011

Oct

Nov

Average (07-10)

Dec

Wind and solar complement one another in the peak

Typical Wind & PV production pattern in Germany

14000
12000

MW

10000
8000
6000
4000
2000
0
Jan

Feb

Mar

Apr

Mai

Total Wind & Solar

18 | Capital Markets Day, Stockholm | 21 September 2011

Jun

Jul

Aug

Solar (Peak)

Sep
Wind

Oct

Nov

Dec

Definitions

Asset backed
Trading

Proprietary
Trading

Origination

Trades with an underlying natural exposure from a trading

asset

Trades with no underlying natural exposure

Trading of highly non-standardised contracts, often with

multi-commodity components. Origination also
incorporates Portfolio Management services, mainly
executing more or less standardised transactions

19 | Capital Markets Day, Stockholm | 21 September 2011