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Navigating Risks in IPEX Market: Enel's Insights

Explore Enel Produzione's assessment of market liquidity, investment trends, and risk mitigation strategies in the IPEX energy sector amidst volatile fuel prices. Understand the importance of forward contracting and market liquidity. Stay informed to make strategic decisions.

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Navigating Risks in IPEX Market: Enel's Insights

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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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