7 BD Asset Optimisation and Trading - Vattenfall · Stockholm, 21 September 2011. 2 | Capital Markets Day, Stockholm | 21 September 2011 Today’s focus ... plans and how the volumes

Asset Optimisation and TradingHarald von Heyden

Head of Business Division Asset Optimisation and Trading

Stockholm, 21 September 2011

2 | Capital Markets Day, Stockholm | 21 September 2011

Today’s focus

• Organisation and key figures

• AOT comprises four business activities

• AOT’s role within Vattenfall

• Hedge strategy process

• Hedge position

• Market development and outlook


Organisation and key figures

Asset Optimisation

and Trading (AOT)

Asset optimisation

Europe

Asset optimisationNordic

Trading Operations

• Optimisation and Dispatch of Assets

• Hedging and Hedging Strategy

• Interface to Assets

• Analysis

• Models and systems

• IT operation

• AOT common processes

• Market Access

• Prop Trading

• Fuel Sourcing

• Origination

Key figures: • EBITDA (2010): SEK 6,035 million (10% of Group Total)

• FTE: 650

• Nationalities: 24+

Trading Volume (External) 2010

Electricity in TWh 1,900

CO2 (EUA and CER) in mt 430

Gas in TWh 925

Counterparts ~550

Transactions per day >1,650


AOT comprises four main business activities

Dispatch optimisation

• Maximize value of assets in spot and intraday markets

Asset backed proprietary trading

• Maximize value of assets in forward markets

- Trade on flows incl. hedging

- Exploit physical optionality

Non asset backed proprietary trading

• Generate profit on back of financial risk capital

• EUR 200 million max loss limit

• Acquire & restructure contractual assets (semi-physical contracts) and other contracts

Origination

1 2 3

4


Electricity and commodity markets

AOT’s role within Vattenfall

•Coal

•Oil

•Gas

•CO2

Asset Optimisation and Trading

GenerationPower

Supply of fuelsSales

Sourcing power and gas

•B2B

•B2C

•Hydro

•Nuclear

•Thermal

•Renewables


Introducing new hedge strategy

Identify hedge

objectives

Set guiding

thresholds

Analyse/decide

hedge strategy

Implement and

review

• primary focus on production

plans and how the volumes

should be hedged from a Business

Unit perspective

• financial aspects only implicitly

represented

New hedge strategy process

• financial aspects explicitly

incorporated when deciding the

hedge strategy

• focus is derived from an overall Group

perspective whilst taking national level

requirements into account

Old hedge reference environment


Hedge ratios

78 76

38

9996

31

0

10

20

30

40

50

60

70

80

90

100

2011 2012 2013

% hedged of forecasted electricity generation, 30 June 2011

Nordic region

Continental Europe

EUR/MWh 2011 2012 2013

Nordic region 45 44 45

Continental Europe 56 55 59


Market development and outlook

• Oversupply situation in Northern Europe

• Risk of market splitting and lower liquidity

- E.g. the Swedish market will be split into 4 price areas 1 November 2011

- Liquidity constraints on some local power and gas markets e.g. Netherlands,

UK and Spain

• Post-Fukushima changes in German and Swiss physical market

- Will Germany become a net importer?

- Grid constrains

• Increased and changed regulation

- Proposed financial regulation by the EU on e.g. transparency, market integrity,

capital requirements, MiFID and mandatory clearing


Appendix


0

10

20

30

40

50

60

70

80

90

100

jun

-04

okt-0

4

feb

-05

jun

-05

okt-0

5

mar-0

6

jul-0

6

no

v-0

6

ap

r-07

au

g-0

7

dec-0

7

maj-0

8

sep

-08

jan

-09

jun

-09

okt-0

9

feb

-10

jul-1

0

no

v-1

0

mar-1

1

jul-1

1

okt-1

1

jan

-12

ap

r-12

jul-1

2

okt-1

2

jan

-13

ap

r-13

jul-1

3

okt-1

3

EU

R/M

Wh

-50

-40

-30

-20

-10

0

10

20

30

TW

h

Systemprice Hydrological Balance

Changes in the Nordic system price are highly correlated with changes in hydrological balance

Syste

m p

rice a

nd

hyd

rolo

gic

al

bala

nce

Outlook• Changes in the balance will

continue to be the main

price driver going forward.

Correlation has not

changed.

• A new major downturn in

the economy will surely

affect Nordic prices as

output falls.

Financial crisis 2008

pushed prices down

despite weakening

hydrology


10

20

30

40

50

60

70

80

90

jul-0

5

no

v-0

5

ma

r-06

au

g-0

6

dec

-06

ap

r-07

au

g-0

7

jan

-08

ma

j-08

se

p-0

8

feb

-09

jun

-09

okt-0

9

ma

r-10

jul-1

0

no

v-1

0

ma

r-11

au

g-1

1

no

v-1

1

feb

-12

ma

j-12

au

g-1

2

okt-1

2

jan

-13

ap

r-13

jul-1

3

okt-1

3E

UR

/MW

h

Systemprice SRMCC

Marginal cost of coal acts as support to the Nordic system price- except hydrological balance is very positive

Syste

m p

rice a

nd

marg

inal co

st

of

co

al

Outlook

• With normalisation of the hydro

balance, dark spreads will be under

pressure in the Nordic region

considering the expansion of wind

and nuclear.

• Could CO2 prices again edge

towards zero if the economy turns

down and output falls?

• The uptrend in coal prices will be

broken if the economy turns down.

Although, support of coal prices will

remain when money flies into gold,

commodities, property (things that

retain value when „money dies“).Hydbal >15 TWh


0

10

20

30

40

50

60

70

80

90

100

feb

-05

jun

-05

okt-0

5

mar-0

6

jul-0

6

no

v-0

6

ap

r-07

au

g-0

7

dec-0

7

maj-0

8

sep

-08

jan

-09

jun

-09

okt-0

9

feb

-10

jul-1

0

no

v-1

0

mar-1

1

jul-1

1

okt-1

1

jan

-12

ap

r-12

jul-1

2

okt-1

2

jan

-13

ap

r-13

jul-1

3

okt-1

3E

UR

/MW

h

Systemprice German Off Peak

German off-peak prices provide additional support - except hydrological balance is very positive

Syste

m p

rice a

nd

Germ

an

off

-peak

Outlook

• With normalisation of the hydro

balance, also the Nordic-German

off-peak spread will be under

pressure in the Nordic region

considering the expansion of wind

and nuclear.

• German off-peak prices will be

supported by nuclear

decomissioning. They will also

stay strong in relation to peak

prices although considering the

expansion of solar power.

Hydbal >15 TWh


0

10

20

30

40

50

60

70

80

90

100

110

120

feb

-05

jun

-05

okt-0

5

mar-0

6

jul-0

6

no

v-0

6

ap

r-07

au

g-0

7

dec-0

7

maj-0

8

sep

-08

jan

-09

jun

-09

okt-0

9

feb

-10

jul-1

0

no

v-1

0

mar-1

1

jul-1

1

okt-1

1

jan

-12

ap

r-12

jul-1

2

okt-1

2

jan

-13

ap

r-13

jul-1

3

okt-1

3E

UR

/MW

h

Systemprice German Peak

The Nordic system price is most of the time below the German peak - except hydro balance is extremely strained in winter*

Syste

m p

rice a

nd

Germ

an

peak Outlook

• More installed wind capacity in the

Nordic region will lead to higher

peak / off-peak spreads and higher

volatility in the spot prices.

• Solar power expansion will put

pressure on German peak prices.

Hydbal < - 30 TWh

Potential if hydro goes

extremely negative

again?

*in combination with low nuclear availability, low temperature and precipitation.


Import/Export Balance Germany (7day moving average)

-8000

-6000

-4000

-2000

0

2000

4000

6000

8000

Jan Feb Mar Apr Mai Jun Jul Aug Sep Oct Nov Dec

MW

(+

Im

po

rt / -

Exp

ort

)

2007 2008 2009 2010 2011 Average (07-10)

The German moratorium triggered a big trade balance swing

Isar 1, Philippsburg 1

Neckarwestheim 1

Unterweser, Biblis A

Grafenrheinfeld (maintenance)

Offline before:

Biblis B, Krümmel

Brunsbüttel

Grohnde, Gundremmingen B

Philippsburg 2, Emsland


Import/Export Balance Germany-France (7day moving average)

-5000

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000


MW

(+

Germ

any im

port

s / -

Germ

any e

xport

s)

2007 2008 2009 2010 2011 Average (07-10)

France contributed the most with a shift of >4,000 MW


Highest nuclear production in France since years facilitates high exports

Nuclear Production France

0

40

80

120

160

200

240

280

320

360

400

440


TW

h

Estimated 2011 based on target 2011 2010 2009 2008 2007

If France sticks to the target,

a lower utilisation (~1,500MW)

would be the result for Q4


Higher wind production in Germany gives relief to imports

Offpeak Import/Export Balance DE-FR (7day moving average)

-5000

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000


MW

(+

Germ

any im

port

s / -

Germ

any e

xport

s)

2007 2008 2009 2010 2011 Average (07-10)

Wind Germany 2011 (deviation from norm)


Wind and solar complement one another in the peak

Typical Wind & PV production pattern in Germany

0

2000

4000

6000

8000

10000

12000

14000


MW

Total Wind & Solar Solar (Peak) Wind


Definitions

Origination

Proprietary

Trading

Asset backed

TradingTrades with an underlying natural exposure from a trading

asset

Trades with no underlying natural exposure

Trading of highly non-standardised contracts, often with

multi-commodity components. Origination also

incorporates Portfolio Management services, mainly

executing more or less standardised transactions

Documents

7 BD Asset Optimisation and Trading - Vattenfall · Stockholm, 21 September 2011. 2 | Capital Markets Day, Stockholm | 21 September 2011 Today’s focus ... plans and how the volumes