9-10 March, 2015, Amsterdam

VALUATION AND HEDGING TECHNIQUES FOR POWER GENERATION

Power Generation Valuation & Hedging

Cyriel de Jong, KYOS Energy ConsultingHans van Dijken, KYOS Energy Consulting

Course Leaders

Welcome to this popular and highly interactive course on valuation and hedging techniques for power generation assets.

A summary of the courseThis two day course provides an in-depth analysis of methodologies to value and manage power generation assets and power contracts. The course mainly covers thermal plants, but also contains separate discussion of virtual power plant contracts, tolling deals, and wind and hydro generation assets.

With real life examples and cases studies the course will demonstrate what techniques can be used to properly value and manage power plants, thereby incorporating relevant technical and commercial plant constraints. Furthermore, the course shows how to construct realistic price scenarios, a key element in valuation and hedging.

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Who should attend?The course aims to attract a wide range of people active in the energy and fi nancial sector, including energy traders, asset developers, portfolio and risk managers, energy market analysts, regulators and consultants. The course does not require any specifi c pre-knowledge. The instructors are used to present technical details in an intuitive manner, both appealing to quantitative and non-quantitative people.

Case study and trading gameThe course is highly practical: throughout the course you will work on case studies with specialized analysis models for plant valuation and hedging analysis. The models will be provided to you for the duration of the course plus a month thereafter.Apart from case studies, the course also features an energy trading game. The goal is to optimize a portfolio of power plants, while hedging in the market and responding to news.

Power Generation Valuation & Hedging

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Programme Day 1 Programme Day 2Introduction power plant valuation

▶ Technologies ▶ Explanation of costs ▶ Financial evaluation of power stations

How to build up the intrinsic value of a power plant ▶ Build-up of intrinsic value

▷ What are typical constraints and optionalities?• Switching between min and max production• Switching between running on 1 and on 2 GT’s• Start costs and start curves• Heat delivery, including boilers and heat buff ers

▷ Main methodologies to create HPFCs as the basis for an intrinsic valuation

▶ Impact renewables on power market ▷ Surge in wind power: impact on pricing ▷ Solar power: impact on peak power price ▷ How to model the impact of renewable growth on future HPFC’s

Valuation of spread options: power plant, cross-border capacity

▶ From intrinsic to extrinsic value ▶ Treating the power plant as a strip of options ▶ Application of the Margrabe’s/Kirk formulas for spread options (power plant as spread option)

▶ Comparing and assessing optionality in: ▷ Forward markets ▷ Spot markets (day ahead) ▷ Intra-day markets ▷ Balancing markets

▶ Other spread options: cross-border capacity

Monte Carlo price simulations and cointegration ▶ Volatility term structure ▶ Cointegration versus correlation ▶ Eff ective simulation of spark and dark spreads ▶ Impact cointegration on power plant value

Dispatch Optimization ▶ Plant constraints: technical, commercial, environmental ▶ Broad comparison and short explanation of optimization techniques: Mixed Integer Linear Programming (MILP), dynamic programming (DP), least-squares Monte Carlo (LSMC)

▶ Explanation about dynamic programming: ▷ Defi ning the states ▷ Defi ning the state transitions ▷ Calculating the continuation value recursively

▶ Optimizing under uncertainty with Least-squares Monte Carlo: ▷ What is the diff erence between perfect and non-perfect foresight. Why is it relevant?

▷ LSMC as an extension of DP ▷ What type of price regression to use for estimating the continuation value?

▷ Including a heat buff er in the state space ▷ Diff erences in value between LSMC and DP

Power plant hedging ▶ Purpose of hedging (risk reduction, profi t optimization) ▶ Delta, gamma, vega ▶ Volume based delta calculations ▶ Using the Margrabe’s / Kirk formula to calculate all option Greeks ▶ Shock-based calculation of option Greeks

▷ With diff erent types of re-optimization and revaluation ▶ Relationship between volume hedges and value hedges

Example power plant valuation ▶ An example power plant will be evaluated ▶ A backtest will be performed, to demonstrate the impact of hedging on the power plant P&L

Energy Trading Game ▶ You manage two power stations ▶ You have to dispatch the assets in the spot market based on spot margins

▶ You have to minimize the exposure, measured by VaR, by delta hedging in the forward market. The

▶ more risk you take, the more capital you need to hold, which is costly

▶ You get news messages, based on which a bit of speculation can help to make extra profi ts

▶ Each participant is in the same position, so results can be directly compared

Before Cyriel de Jong founded KYOS, he was assistant professor at Erasmus University. Since 2001 he has been a trainer in energy markets, mainly focusing on fi nancial risk management and energy fi nance.

Cyriel has done a great number of projects related to energy derivative valuation, risk management and investment analysis (including real options). He is particularly active in the application of fi nancial simulation methodologies to value power plants, gas storages, long-term contracts, and transportation. Cyriel holds an MSc in Econometrics from the University of Maastricht and a PhD in Financial Derivatives from Erasmus University.

Hans van Dijken has been active in energy markets since 2001. Before he joined KYOS, he worked for Reliant Energy and Nuon in the Netherlands.

During this period, he worked in various functions within risk management and business development. Within KYOS, Hans has been working on various projects related to investment analysis, power plant valuation, tolling deals and implementation of hedging strategies. He is largely active in optimizing power plant dispatch decisions, while enhancing value through the application of hedging strategies.Hans holds an MSc in Business Administration from the University of Twente.

“I attended this course in 2011 and this was useful. I have learned/improved some concepts like Spark Spread, VPP, hedging and I implemented it in my work. Moreover, I practiced in a small hedging game. But for me, the most important thing was that I met people from diff erent companies and countries with whom I could discuss about our business.”Davy Swennen, Business Expert & Controlling Analyst at EDF Luminus

“The course Power Generation Valuation and Hedging gives a very good overview for beginners about how generation assets are used in the diff erent power markets. It also provides an excellent insight on mathematical models for generation optimization and hedging strategies on an advanced level.”Jan Smolka, Portfolio Manager (Generation Assets & Energy Trading) at Trianel Gmbh

Cyriel de JongPartner, KYOS Energy Consulting

Hans van DijkenPartner, KYOS Energy Consulting

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LEADERLEADERLEADERCOURSE LEADERS

LEADER LANGUAGEThe workshop will be delivered in English.

DATE 9-10 March, 2015, Amsterdam, The Netherlands

SCHEDULEEach day starts at 09.00 and fi nishes at 17.00hrs.

REGISTRATIONhttp://www.energy-expert-network.com/coursesE-mail: Johanna.Oberg@energy-expert-network.comPhone:+46 (0) 708 55 65 62

FEESEarly Bird 2225€ (before 26 January) + Dutch VATStandard price 2475€ + Dutch VAT

MULTIPLE REGISTRATION DISCOUNTRegister two or more people from the same company and receive an additional 10% discount.

FOOD AND BEVERAGEFood and beverages will be provided to the participants during the day. Specifi c wishes can be submitted to the organization.

LAPTOPProvided the character of the workshop participants are required to bring a laptop, which has installed MS Excel.

DOCUMENTATIONParticipants receive documentation, calculations and exercises in a manual.

ABOUT THE ORGANIZERS

ENERGY EXPERT NETWORKThe Energy Expert Network is a network of experts and hands-on energy market participants that provides companies with tailored courses.

The Energy Expert Network consists of the ‘best of the best’ industry experts, well known for their knowledge and experience in teaching energy industry professionals. Energy Expert Network also provide open courses on fi xed dates in co-operation with external experts.