Course Duration: 3 Day

Course Format: Lecture type format with case studies, examples and discussions.

Target Participants:

  • Power system practitioners and members of Academia
  • Power system operators and planners
  • Professionals from the purchasing, planning and finance departments of energy consumers
  • Operators and planners from distribution companies
  • Energy Brokers and Aggregators

Key Learning Objectives:

The course introduces the building blocks required to evaluate price risk, analyze and manipulate the exchange traded products used for hedging, and understand the over the counter products used in hedging strategies for various Electricity, Oil & Gas activities.

Course Instructor

Puica Nitu is a Utility Executive with extensive experience in all aspects of power systems operation from fundamentals to energy trading, enterprise risk and regulatory oversight. Ms. Nitu has contributed to complex projects including real time applications and long-term planning (i.e., power system reliability, stability, planning and operational standards). She specializes in Smart Grids, Renewable Generation, Reliability, Financial Engineering, Energy Markets and Power System Integration.

Ms. Nitu has worked for over 25 years with Ontario Power Generation (Revenue $1.2 Billion) and has reviewed NERC and NPCC standards for the Ontario electricity market. Currently, Ms. Nitu is a member of NSERC (Natural Sciences and Engineering Research Council of Canada), IEEE and Elsevier (since 1990).

Other experiences include a strategic advisory role with a Canadian law firm to assist a large pension fund in investing in renewables and infrastructure projects. Ms. Nitu co-founded the Canadian Institute World Energy System (1994) where she organized Energy Conferences in Canada, Romania, Japan, Italy and at the Academy of Science in Russia.

Puica Nitu has chaired international conferences, lectured on several continents, published a book, as well as over 25 technical papers including a policy position paper in the Ontario Journal for Public Policy. Ms. Nitu has also delivered a successful seminar organized by the Power Engineering Society, IEEE, followed by a dynamic international activity, with seminars delivered to power companies worldwide: SEC, Saudi Arabia, TNB, Malaysia, EDP, Portugal , ESKOM, South Africa, Japan, RENEL, Romania, and others. With strong leadership capabilities, Puica Nitu has a proven record in bringing people together and speaking at the right level across organizations.

Puica Nitu is a member of the Professional Engineers of Ontario, Canada.

Course Highlights:
The course describes the electricity market in detail, providing a good understanding of market structures and interjurisdictional trading. Risk management methodologies and  borrowing from capital markets are introduced in an electricity market context. Specific derivatives utilized in energy markets, either through exchanges and/or bilateral contracts, are highlighted with examples. Special attention is given to the identification of risk exposure and methods for mitigating risk through energy exchanges and hedging instruments. Topics include market design, market bids and offers, and electricity price formation. The role of Independent System Operators is discussed including transmission pricing, congestion management, firm transmission rights and ancillary services management.

      • Government regulation that leads to an open market
      • Description of an energy market with examples
      • Regulation to mitigate risk exposures
      • Financial derivatives
      • Value at Risk

This unique course, first presented at the IEEE Power Engineering Society, provides a solid understanding of the energy risk management tools and strategies necessary to meet the challenges involved in market based power pricing. The course has a practical focus aimed toward the learning concepts required to anticipate the evolution of the power industry. It guides the utility from a regulated environment to an active participant in the open market.

LESSONS LEARNED FROM VARIOUS JURISDICTIONS

      • North American Markets: FERC, NERC
      • FERC White Paper on Transmission Policy
      • Transition from a Deregulated to Regulated Environment
      • Challenges of Scale, Scope and Timing

MARKET ECONOMICS: Canada, Europe, USA

      • Design of the Ontario Electricity Market
      • Real Time Market
      • Day Ahead Market
      • Economic Dispatch
      • Unconstrained Price
      • Constrained Price
      • Bidding Strategy
      • Interjurisdictional Trading
      • Intertie Pricing
      • Locational Marginal Price
      • Energy Price Cap
      • Simple and Complex Case Studies for Interjurisdictional Trading and Risk Mitigation

RISK MANAGEMENT

      • Risk Framework / Metrics
      • Examples of Regulatory Risks
      • Two types of Markets: Over the Counter and Exchanges
      • Types of Vanilla Instruments
        • Futures (NYMEX, Amsterdam Exchange)
        • Strategies: Vanilla and exotic options
        • Swaps
      • Design of Contracts (ISDA, EEI), OTC, Nymex

ENTERPRISE RISK

      • Basel Committee for Banking Supervision
      • Market Risk
      • Operational Risk
      • Credit Risk – Contract Risk
      • Liquidity Risk
      • Physical Risk of Generating Assets
      • Legal and Regulatory Risks
      • Basis Risk (locational, futures)
      • Trading Controls and Best Practices
      • Independent Risk Management
      • Enterprise Risk: Front to Back Office
      • Case Study: Lehman Brothers

CONCEPTS OF DERIVATIVES PART I

      • Forward Contracts: Contango, Backwardation
      • Futures Contracts
      • Contract Standardization
      • Energy Futures contracts
      • Arbitrage Pricing Theory
      • Convenience Yield
      • Swaps
      • Typical trades – futures, swaps, options
        • Choice of Hedges
        • Real life examples

ENERGY DERIVATIVES PART II

      • Option Contracts
      • Strategies Involving Options
      • Basic Options Strategies
      • Call-Put Parity
      • Daily Options, Monthly, Spreads
      • Spark Options on 2 commodities
      • Spark Options on 3 commodities
      • Volumetric or Swing Options
      • Real Options: Power and Physical Constraints

OPTION VALUATION

      • Valuation of Option Strategies
      • Closed Form Solutions (Black Scholes)
      • The Binomial Tree Approach
      • Monte Carlo Valuation of Options

QUANTITATIVE FINANCIAL MODELS

      • Quantitative Financial Models
      • Stochastic Factors: Production and Demand
      • Mean Reversion Model, Jumps

VOLATILITY

      • Volatility Price Models
      • Stochastic Volatility
      • Annualized Volatility

PORTFOLIO ANALYSIS

      • Demand and Supply Equilibrium Price
      • Electricity Forward Prices
      • Revenue Projections from Electricity Generation

EXAMPLES OF FORWARD CONTRACTS, OPTIONS AND FUTURES APPLIED TO GAS AND ELECTRICITY VALUE-AT-RISK

      • Historical Simulation
      • Monte Carlo Simulation
      • Closed For Solution for Portfolio

FINANCIAL TRANSMISSION RIGHTS

      • Transmission Pricing
      • Congestion Management
      • Auction
      • Residual Risk

CASE STUDY: WEATHER DERIVATIVES

      • Weather Risk
      • Description of Weather Contracts
      • Weather Risk Management Instruments