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ECMWF products and the European energy markets. ECMWF, Reading, 16 th of June 2005 Stefan Meulemans Sempra Energy Europe Ltd. London. Liberalization. Free choice of gas and electricity provider Opening of the European energy markets. Pan-European market?.
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ECMWF productsand the European energy markets ECMWF, Reading, 16th of June 2005 Stefan Meulemans Sempra Energy Europe Ltd. London
Liberalization • Free choice of gas and electricity provider • Opening of the European energy markets
Pan-European market? • Currently national but interconnected gas and electricity markets • Goal is to have one European supply-demand based market
National electricity markets • Nord Pool Scandinavia • OMEL Spain • Powernext France • EEX Germany • APX The Netherlands • UKPX The UK
Oil and Gas • Brent crude, NYMEX and heating oil • Gas
Daily QENOYc1 [Candle] [Professional] 08/03/2005 - 07/06/2005 (GMT) Price EUR 33 32.7 32.4 32.1 31.8 31.5 31.2 30.9 30.6 30.3 30 29.7 29.4 29.1 28.8 28.5 28.2 27.9 27.6 27.3 27 14 21 31 07 14 21 28 06 13 24 31 07 Mar 05 Apr 05 May 05 Futures and forwards • Day ahead (EC) • Week ahead (EC) • Month Ahead (EC) • Cal ahead QENOYc1, Last Trade, Candle 06/06/2005 31.90 32.25 31.80 32.23
Demand and supply • These two variables determine the forward electricity, gas and oil prices • Weather important parameter, both for demand and supply
Temperature • Heating demand (contrast north-south) • Cooling demand, more in USA but changing climate? • Cooling water nuclear plants • Melt ice and snow
Hot weather August 2003 Prices spikes due to • A/C • Cooling water nukes • Drought and low hydro levels • Low wind in Germany
Wind Installed wind capacity • Short range deterministic – storms! • Mid range ensemble ECMWF
Nordic markets • Weather crucial due to very high hydro capacity • Market very dependent on ECMWF model
Daily QENOYc1 [Candle] [Professional] 16/03/2005 - 14/06/2005 (GMT) Price EUR 33 32.7 32.4 32.1 31.8 31.5 31.2 30.9 30.6 30.3 30 29.7 29.4 29.1 28.8 28.5 28.2 27.9 22 01 08 15 22 29 09 18 25 01 08 15 Mar 05 Apr 05 May 05 Jun 05 Currently… • Cal 06 hovering and no obvious trend • Very important to see extreme drought or wet weather • Confidence level crucial QENOYc1, Last Trade, Candle 13/06/2005 32.80 32.80 32.70 32.75
NAO outlook • Based on ECMWF • Particularly day 10 important • Only what is not yet known by market important! • Negative NAO years bullish et vice versa
Probabilistic long-range outlook • Reduced risk on mid-range positions • Now particularly for temperatures and precipitation, but wind would be interesting too • When signal is strong, it makes sense to take significant long or short positions
Seasonal outlook(Met Office) • Particularly useful if strong trends • Interesting for electricity, gas and fuel oil markets (also USA) • Also hydro
Also CO2 and weather derivatives • Cold winter or hot summer would also increase CO2 output, and eventually general electricity prices • Reduce risk in speculative weather derivatives contracts, or decreased hedging if seasonal outlook is showing strong trend
Summary • ECMWF products useful to be ahead of the energy markets. Know first
What could be done? • ECMWF 15-day but should start soon? • Monthly outlook on daily base? Very interesting for development significant large-scale trends. Ready in morning? • NAO ensembles? • Skill research wind (extremes)