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									VERBUND-Austrian Power Trading




      Modelling Electricity Prices

           Dipl.-Ing. Dr. Josef H. Bogensperger
                   Head of Risk Management
             VERBUND – Austrian Power Trading AG
Welcome, may we introduce ourselves

VERBUND is ...
► ... the largest producer and distributor of electrical energy in Austria
► ... the operator of the super-regional high-voltage grid of Austria with
      important connections to the neighbour countries in Central Europe
► ... one of the biggest Austrian listed companies
► ... the most eco-friendly electricity generator in the European Union
► ... one of the most modern electricity companies in Europe
► ... a successful player at the European electricity market

   Dr. Josef Bogensperger   6. August 2012                                   2
VERBUND Key Figures 2005: Numbers

 ►   Sales revenue                              2,51 bn €   Share Chart
 ►   EBIT                                     526,5 mln €
 ►   Free Cash Flow                           597,3 mln €
 ►   Moody´s Rating                                   A1

 ► Electricity sales                      57,282 GWh
 ► Generation                             29,011 GWh
     ►Hydro                               24,788 GWh
     ►Thermal                              4,223 GWh

 ► Employees                                       2,436

                                                                                   Republic of
                                                                            22 %
                                                                   51 %            Austria
                           Shareholding Structure                                  Free Float
                                                                          27 %
                                                                                   Institutional
                                                                                   Investors
  Dr. Josef Bogensperger     6. August 2012                                                        3
VERBUND Key Figures 2005: Volumes




  Dr. Josef Bogensperger   6. August 2012   4
VERBUND-Austrian Power Trading AG

         Energy Turnover: (APT trades in the name and on behalf of VERBUND)
          2004: 86 TWh (69% international, 79% thereof in Germany)
         Products:                                  APT & APT Subsidiaries
          Physical Energy,                           APT Target Markets
          Energy Derivatives,
                                                     APT New Markets
          Proofs of Origin,
          Emission-Certificates

         Target Groups:
          Retail, Wholesale,
          Big (Industrial) End users

         Employees:          120

         Owner:              100% Verbund
    Dr. Josef Bogensperger   6. August 2012                                    5
VERBUND Organizational Chart
                                                         VERBUND HOLDING


                             VERBUND-                   VERBUND-             VERBUND-          VERBUND-
                           Austrian Power              Austrian Hydro      Austrian Power    Austrian Power
                              Grid AG                    Power AG            Trading AG       Sales GmbH

                   VERBUND Italia                     VERBUND-Austrian
                                                        Thermal Power
                           Energia
                                                       GmbH & Co. KG          APT SK
                           POWEO
                                                                              APT CZ
           Energie Klagenfurt GmbH
                                                                           APT Hungária

                VERBUND-                                                 APT Energa Hellas
             BeteiligungsgmbH
                                                                           APT Slovenija
                  VERBUND-                                               APT Deutschland
                 Management
                Service GmbH

  Dr. Josef Bogensperger             6. August 2012                                                           6
Table of Contents


                          Price forward curve (PFC)

                          Hourly price forward curve (HPFC)

                          Simulation Results

                          Scenario Backtesting



  Dr. Josef Bogensperger      6. August 2012                   7
Specification of firm schedule

   Fixed schedule: The customer defines an hourly fixed schedule,
    every deviation will be charged extra by actual prices




  Dr. Josef Bogensperger   6. August 2012                            8
Hourly curve needs a two component model



                           “Historical”            Stochastic
                             factors               spot prices


                            yearly,
 Market                                       monthly            hourly
                           quarterly                                      Pricing
  data                                         PFC                PFC
                             PFC

                           1st component            2nd component

  Dr. Josef Bogensperger     6. August 2012                                         9
Price forward curve (PFC)

    price



                           month products
                                                                      year products

                                                   quarter products

                    balance of month (BOM)

          now                                                                    time


      load data of structured products is hourly → we need hourly prices

  Dr. Josef Bogensperger          6. August 2012                                        10
Price forward curve (PFC)

   Prices for future delivery at various points in time


   Granularity of observable products reduces over time


   Reflects the actual market opinion


   Emerge from traded standard products
         (month/quarter/year, base/peak)



  Dr. Josef Bogensperger   6. August 2012                  11
Price forward curve (PFC)


   We use all historical data from the European Energy
    Exchange (EEX) as model input.

  Assume the following price processes for historical data of future
  products:


  Year:............................ Yi (t), i  {2002,      , 2012}
  Quarter in year (i):........ Q k,i (t), k  {1,        , 4}
  Month in quarter (k):..... M j,k (t), j  {1,          ,3}
  Dr. Josef Bogensperger   6. August 2012                              12
1st component: receive monthly PFC

historical factors
             1                                                            1
  y,q 
             
                   Qk,i  t  Yi  t 
                  t
                                                                 q,m 
                                                                          
                                                                              M t
                                                                              t
                                                                                    j,k    Qk  t 



            Yi  T  y,q                quarterly PFC                   Ql  T  q,m          monthly PFC

                  Yi  T                            Qk  T                  Ql  T                 M j (T)
actual market data
    0,...,T                                  includes specific times of history
   Dr. Josef Bogensperger        6. August 2012                                                                 13
Another method to receive quarterly PFC



   Assuming that the following correlation is high

                         Q  t  Qk,i 1  t  
                   corr  k,i
                         Y t Y t 
                                 ,
                                                
                         i         i 1        

  → we can use actual quotes for the estimation of  y,q




  Dr. Josef Bogensperger         6. August 2012            14
Arbitrage free monthly forward curve (MPFC)

   Monthly prices have to be arbitrage free compared to quarterly and
    yearly prices, therefore:

                           12                               i, j …year i, month j in year i
            yi Yi (t)   m j,i M j,i (t)
                           j1                          yi , m j,i …Number of hours
                                                  Yi (t), M j,i (t) …prices at t



   Settlement prices are arbitrage free, intraday prices in general not
         → be careful using actual quotes, get them first arbitrage free

  Dr. Josef Bogensperger         6. August 2012                                               15
2nd component: receive HPFC

   Spot price simulation: Sampling method

           Cluster similar historical data: season, weekend, holidays,…
           Random selection of a historic day of a corresponding class

           → we get a sample H1, j ,                        
                                                       , H n j , j of hourly prices for month j

           Get hours arbitrage free: For example, shift all hourly prices till
                            nj

                  M jm j   H k, j is fulfilled.
                           k 1

  Dr. Josef Bogensperger          6. August 2012                                                  16
2nd component: receive HPFC


Possible improvement

Modelling spot prices as stochastic process on a daily basis using

 Jump Diffusion or

 Regime Switching




  Dr. Josef Bogensperger   6. August 2012                            17
How to display results

                                            short
                                            long




  Dr. Josef Bogensperger   6. August 2012           18
How to display results

   Price distribution for
   1000 possible scenarios




   If quarters do not quote,
   we look at the
   summer/winter spread of
   the scenarios


  Dr. Josef Bogensperger   6. August 2012   19
Back testing models

   Back testing is the validation of the underlying simulation
   Regarding HPFC in APT back testing is solved using a database

   Historical and simulated price data are fed into a database
            Historical prices since the start up of the certain power exchange

            Simulation prices HPFC for 1000 scenarios

   Possibility of selection criteria on specific periods of time to find similarities
   Graphical query results indicate strengths and weaknesses of a model



  Dr. Josef Bogensperger   6. August 2012                                                20
Back testing models

 Comparison of historical and simulated prices for every Wednesday, 7-10pm
  Probability
   0,16

   0,14
                                                                                                                                                              Simulation
                                                                                                                                                              History
   0,12

    0,1

   0,08

   0,06

   0,04

   0,02

       0
        0




                                         1




                                                                          2




                                                                                                          3




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               2

                      4

                              6

                                     8



                                                 2

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                                                                                 2

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                                                                                                                 2

                                                                                                                        4

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                                                                                                                                                 2

                                                                                                                                                        4

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                                                                                                                                                                      8
            0,

                   0,

                           0,

                                  0,



                                              1,

                                                     1,

                                                            1,

                                                                   1,



                                                                              2,

                                                                                     2,

                                                                                            2,

                                                                                                   2,



                                                                                                              3,

                                                                                                                     3,

                                                                                                                            3,

                                                                                                                                   3,



                                                                                                                                              4,

                                                                                                                                                     4,

                                                                                                                                                            4,

                                                                                                                                                                   4,
                                                                                                                             Scaled prices based on monthly means

  Dr. Josef Bogensperger                     6. August 2012                                                                                                                   21
Thank you
for your attention!

                                           Dipl.-Ing. Dr. Josef H. Bogensperger
                                           VERBUND-Austrian Power Trading AG

                                           Tel.    +43 (0) 50313-53020
                                           Mob.    +43 664 243 58 34
                                           Fax.    +43 (0) 50313-153020
                                           email   Josef.Bogensperger@verbund.at

 Dr. Josef Bogensperger   6. August 2012                                           22

								
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