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Whither IPEX in risky times?
Rome, 7 December 2007
Nigel HawkinsResponsabile Bidding, Enel Produzione.
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
Market liquidity – MGP vs Contracts Markets
up until
30 Nov
TWh/annum
67
203 197 201
164
120 133100
28%
63% 60% 67%
-
100
200
300
400
2004 2005 2006 2007
Bilateral Contracts
MGP
Liquidity MGP (%)
Investment in new capacity
3040
3800
1900
1140
380
1900
2003 2004 2005 2006 2007 2008 2009 2010 2011
Riconversioni
760
1780
3800
22802660 2520
1380
760380
2003 2004 2005 2006 2007 2008 2009 2010 2011
Greenfield
0 500 1000 1500 2000
(*) Enel estimate (*) Full capacity of plant
Greenfield Conversions
MW 16,32012,160
Total period 2003-2011
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
0 2000 4000 6000 8000
0 2000 4000 6000 8000
Greenfield
Conversions
Conversions
Risk – Europe susceptible to fuel price increase
59%
95%
80%
100%
100%
98%
2025
Natural gas
Oil
82,7%
98,8%
Solid Fuels
Source: European Energy & Transport – Trends to 2030
Relationship between net import by source and gross consumption
Dependence on foreign fuel suppliesDependence on foreign fuel supplies
Total
0
5
10
15
20
25
30
ott-06 dic-06 feb-07 apr-07 giu-07 ago-07 ott-07
€/ tCO2
0
2
4
6
8
10
12
14
Mton
Volumi EUAs (dx) EUAs 07 (sx) EUAs 08 (sx) CERs 08 (sx)
40
50
60
70
80
90
100
110
120
ott-06 dic-06 feb-07 apr-07 giu-07 ago-07 ott-07
$/t
0
20
40
60
80
100
$/t
Spread API 2 08-API 4 08 (dx) API 2 08 (sx) API 4 08 (sx)
50
60
70
80
90
100
ott-06 dic-06 feb-07 apr-07 giu-07 ago-07 ott-07
$/ b
I PE Brent Cal 08 Brent Spot
Risk - fuel prices
Oil Gas
Coal CO2
*NBP (National Balancing Point): Hub in UK; TTF (Title Transfer Facility): Hub in Olanda**API2: CIF ARA (Amsterdam Rotterdam Anversa), API4: FOB Richards Bay
0
10
20
30
40
50
ott-06 dic-06 feb-07 apr-07 giu-07 ago-07 ott-07
€/MWh
TTF Cal 08 NBP Day Ahead
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.
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
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?
Market liquidity – OTC Weekly energy transactions in 2007
0
250
500
750
1.000
1.250
1.500
1.750
2.000
2.250
1 5 9 13 17 21 25 29 33 37 41 45
Week
GWh
Day
Week
Month
Quarter
Calendar
Total Volume Traded 16TWh
Market liquidity – OTC Transactions in November 2007
11520
240
670
435
210
10 45 595
715
2.645
10
2.540
124
166
74
112 1
12
47
0
1.000
2.000
3.000
Day-Ahead Week Dec-07 Jan-08 Feb-08 Mar-08 Q108 2008
Products
MW
-100
-50
0
50
100
150
200
Number of Trades
Physical Products Financial Products Number of Trades
Total Volume Traded 3TWh
What does the market need?
Freedom of Choice
Liquidity
Reference Price
System Security
What does the market need?
Freedom of Choice
Liquidity
Reference Price
System Security
Development of
liquidity of financial and physical products in all timescales
