Course description
Gas and Power Hedging is a two-day instructor-led course presented by the energy training experts at Mennta Energy Solutions. The principal aim of this course is to expose delegates, to comprehensive training 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 gas and power markets, their main players and common traded 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.
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 as well as physical assets and contracts to manage price, credit, volumetric, and operations risk.
Course Methodology And Materials
This course is highly interactive, and we encourage delegate participation and group discussions.
Numerous case studies are presented throughout the courses, with particular emphasis on the interpretation and use of trading and risk management concepts introduced in real-life examples.
Delegates will make presentations to the group and conduct numerous individual and group exercises.
Trading Simulation
The trading simulation will provide an opportunity for delegates to use the main hedging instruments as well as take advantage of market views as a response to changes in power market conditions. Delegates will execute their own trading strategy and will calculate and monitor their own P/L, adjust their hedge book, as well as keep positions within limits such as volumetric, stop losses, VaR and Stress tests.
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Suitability - Who should attend?
- Energy Traders and Marketers
- Energy Analysts
- Marketing Managers
- Sales Managers
- Asset Optimizers
- Power Utilities staff
- Power and Fuel purchasing managers
- End-users of derivatives in corporations
- Market Risk Managers
- Credit Risk Analysts
- Risk consultants
- Risk and Audit Committee Members
- CFOs and Treasury Managers
- COOs
- Finance department personnel
- Compliance and Internal Audit
- Middle and Back-Office Personnel
- Government agencies
Suitability
- Energy Traders and Marketers
- Energy Analysts
- Marketing Managers
- Sales Managers
- Asset Optimizers
- Power Utilities staff
- Power and Fuel purchasing managers
- End-users of derivatives in corporations
- Market Risk Managers
- Credit Risk Analysts
- Risk consultants
- Risk and Audit Committee Members
- CFOs and Treasury Managers
- COOs
- Finance department personnel
- Compliance and Internal Audit
- Middle and Back-Office Personnel
- Government agencies
Training Course Content
Day I
Power Prices, Drivers, Behavior, and Volatility
• Physical and Financial Power Markets: From Producers to End-users
• Risk dimensions: Price, basis, credit, liquidity, volume, operations
• Long or short? Volumetric and Financial Considerations
• Forward curve analysis for power markets: Shaping and Extrapolation
• Case study: Forward curves vs. Price Forecasts
• Spot and Forward energy price behavior and its volatility structure
Physical Contracts and Linear Instruments
• Physical purchase and sale contracts
• Fixed Price, Index, Heat Rate
• Futures vs. Forwards
• Open Interest, Bid-ask Spreads and Volume
• Swaps (Fixed-for-Floating, Index), Basis Swaps
• Price Fixing, delivery window and settlement timeline in physical contracts
• Price Fixing window and settlement timeline in financially settled contracts
Options and Non-Linear Instruments
• Review of key option concepts
• Options types and payoffs
• Strip of options
• Average Price (Asian) Options and Options on Swaps (Swaptions)
• Understanding optionality and contract components
• Use of options in utility hedging programmes
Mark to Market, P/L and Position Management
• Book Structure and Position Management
• Front, Middle and Back Office Flows
• Mark to market vs. Mark to Model
• The role of the Forward Curve in Mark-to-Market
• Profit and Loss decomposition for a trading book
• Position Management for portfolios with assets, physical contracts and financial instruments
• Mark to market of options and structured products
• Implied volatility vs. Historical Volatility
• Volatility skews and volatility surfaces
• Mark-to-model: Illiquid instruments and derivatives valuation
Utility Hedging Strategy Discussion (I)
• Review of pre-reading papers
• Questions for discussion on Day II
Day 2.
Utility Hedging Strategy Discussion (II)
• Review of answers and group discussion
Market, Liquidity and Credit Risk Management
• Market Risk Management for Physical transactions
• Understanding and interpreting “at-Risk” measures, Value at Risk, Earnings at Risk (EaR), Cash Flow at Risk (CFaR)
• Anticipating potential collateral and margin needs. Introduction to Collateral at Risk. (superficially)
• Sensitivity analysis and Stress Tests
• Credit Risk Measurement and Management: Netting, Collateral and Credit Triggers
• Current Exposure and Walk Forward Analysis
• Credit Exposures and Potential Future Exposure Modeling
Real options and Physical Assets
• Typology of Real Options
• Optimization and Monetization Strategies
• Standard vs. Real Options
• Understanding locational basis relationships in power markets
• Examples: Congestion Revenue Rights (CRR) and Financial Transmission Rights (FTR)
• Understanding and modeling cross-commodity spread behavior
• Power generation and the spark spread
• Spark Spreads and Heat Rate Forwards and Options
Volumetric and Weather Risk
• Key sources of volume risk in power markets
• Possible problems when hedging physical exposures with financial forwards: Plant outages, Plants not dispatched.
• Hedging Volumetric Risk: Weather Derivatives and Multiple-trigger contracts
• Volumetric risk and Operational Risk:
• Unplanned Outage Insurance
Hedging Strategies with Options
• Zero Cost Collars: Benefits and risks
• Three Way Collars: Speculative vs. Conservatives structures
• Straddles and delta-neutral strategies
• Case study: Hedging volume risk with straddles
• Extendable, Double Up and Participating Swaps
• Energy option ‘Greeks’: uses and limitations
• Tips for negotiating with hedge counterparties
Content
Day I
Power Prices, Drivers, Behavior, and Volatility
• Physical and Financial Power Markets: From Producers to End-users
• Risk dimensions: Price, basis, credit, liquidity, volume, operations
• Long or short? Volumetric and Financial Considerations
• Forward curve analysis for power markets: Shaping and Extrapolation
• Case study: Forward curves vs. Price Forecasts
• Spot and Forward energy price behavior and its volatility structure
Physical Contracts and Linear Instruments
• Physical purchase and sale contracts
• Fixed Price, Index, Heat Rate
• Futures vs. Forwards
• Open Interest, Bid-ask Spreads and Volume
• Swaps (Fixed-for-Floating, Index), Basis Swaps
• Price Fixing, delivery window and settlement timeline in physical contracts
• Price Fixing window and settlement timeline in financially settled contracts
Options and Non-Linear Instruments
• Review of key option concepts
• Options types and payoffs
• Strip of options
• Average Price (Asian) Options and Options on Swaps (Swaptions)
• Understanding optionality and contract components
• Use of options in utility hedging programmes
Mark to Market, P/L and Position Management
• Book Structure and Position Management
• Front, Middle and Back Office Flows
• Mark to market vs. Mark to Model
• The role of the Forward Curve in Mark-to-Market
• Profit and Loss decomposition for a trading book
• Position Management for portfolios with assets, physical contracts and financial instruments
• Mark to market of options and structured products
• Implied volatility vs. Historical Volatility
• Volatility skews and volatility surfaces
• Mark-to-model: Illiquid instruments and derivatives valuation
Utility Hedging Strategy Discussion (I)
• Review of pre-reading papers
• Questions for discussion on Day II
Day 2.
Utility Hedging Strategy Discussion (II)
• Review of answers and group discussion
Market, Liquidity and Credit Risk Management
• Market Risk Management for Physical transactions
• Understanding and interpreting “at-Risk” measures, Value at Risk, Earnings at Risk (EaR), Cash Flow at Risk (CFaR)
• Anticipating potential collateral and margin needs. Introduction to Collateral at Risk. (superficially)
• Sensitivity analysis and Stress Tests
• Credit Risk Measurement and Management: Netting, Collateral and Credit Triggers
• Current Exposure and Walk Forward Analysis
• Credit Exposures and Potential Future Exposure Modeling
Real options and Physical Assets
• Typology of Real Options
• Optimization and Monetization Strategies
• Standard vs. Real Options
• Understanding locational basis relationships in power markets
• Examples: Congestion Revenue Rights (CRR) and Financial Transmission Rights (FTR)
• Understanding and modeling cross-commodity spread behavior
• Power generation and the spark spread
• Spark Spreads and Heat Rate Forwards and Options
Volumetric and Weather Risk
• Key sources of volume risk in power markets
• Possible problems when hedging physical exposures with financial forwards: Plant outages, Plants not dispatched.
• Hedging Volumetric Risk: Weather Derivatives and Multiple-trigger contracts
• Volumetric risk and Operational Risk:
• Unplanned Outage Insurance
Hedging Strategies with Options
• Zero Cost Collars: Benefits and risks
• Three Way Collars: Speculative vs. Conservatives structures
• Straddles and delta-neutral strategies
• Case study: Hedging volume risk with straddles
• Extendable, Double Up and Participating Swaps
• Energy option ‘Greeks’: uses and limitations
• Tips for negotiating with hedge counterparties
Reviews
Average rating 5
I really appreciated Carlos' skills as an instructor. His demeanor, knowledge and experience made this training an exceptional experience.
The instructor has a relaxed and natural delivery of complex subject matter. I also appreciateed the instructor's flexibility with incorporating topics of particular interest to...
Great course! I am excited to explore the spreadsheets & materials further.