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Whither IPEX in risky times?

Whither IPEX in risky times?. Nigel Hawkins Responsabile Bidding, Enel Produzione. Rome, 7 December 2007. IPEX has worked well since it went live on 31 March 2004. Liquidity - high Spot Price – a reference for annual contracting Investment in new capacity.

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Whither IPEX in risky times?

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  1. Whither IPEX in risky times? Nigel HawkinsResponsabile Bidding, Enel Produzione. Rome, 7 December 2007

  2. IPEX has worked well since it went live on 31 March 2004 • Liquidity - high • Spot Price – a reference for annual contracting • Investment in new capacity

  3. Market liquidity – MGP vs Contracts Markets TWh/annum up until 30 Nov

  4. Investment in new capacity Total period 2003-2011 Greenfield Conversions 16,320 12,160 MW Greenfield Conversions 0 2000 4000 6000 8000 0 2000 4000 6000 8000 Conversions (*) Enel estimate (*) Full capacity of plant • Period 2003-2011 characterised by new greenfield capacity of around 16GW • New entrants concentrated in the North zone in the initial phase; from 2006 significant presence also in the South

  5. Risk – Europe susceptible to fuel price increase 98,8% 98% Relationship between net import by source and gross consumption 82,7% 80% Total Natural gas 100% Oil 95% Solid Fuels 100% 59% 2025 Dependence on foreign fuel supplies Source: European Energy & Transport – Trends to 2030

  6. Risk - fuel prices Gas Oil CO2 Coal *NBP (National Balancing Point): Hub in UK; TTF (Title Transfer Facility): Hub in Olanda **API2: CIF ARA (Amsterdam Rotterdam Anversa), API4: FOB Richards Bay

  7. Faced with risk….. • Faced with risk the natural choice of market participants is to contract forward – both fuel purchases and power sales. • ….eliminating market risk, converting to physical risk.

  8. Faced with risk….. • Faced with risk the natural choice of market participants is to contract forward – both fuel purchases and power sales. • ….eliminating market risk, converting to physical risk. • Failure to deliver physically would lead to the need to buy back • in IPEX day ahead at the PUN, or else • at the penal imbalance price

  9. Faced with risk….. • Faced with risk the natural choice of market participants is to contract forward – both fuel purchases and power sales. • ….eliminating market risk, converting to physical risk. • Failure to deliver physically would lead to the need to buy back • in IPEX day ahead at the PUN, or else • at the penal imbalance price • To avoid exposure to the PUN the producer requires liquidity in the forward markets for products within year – monthly, weekly, daily, hourly. • What is the liquidity of such products?

  10. Market liquidity – OTC Weekly energy transactions in 2007

  11. Market liquidity – OTC Transactions in November 2007

  12. What does the market need? • Freedom of Choice • Liquidity • Reference Price • System Security

  13. What does the market need? • Freedom of Choice • Liquidity • Reference Price • System Security • Development of liquidity of financial and physical products in all timescales

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