Lo sviluppo della produzione di
Lo sviluppo della produzione di
energia da fonti rinnovabili: un
energia da fonti rinnovabili: un
costo o un
costo o un
’
’
opportunit
opportunit
à
à
di
di
copertura?
copertura?
Roberta Bigliani, EMEA Research Director
FONTI RINNOVABILI, EFFICIENZA ENERGETICA E CO2
Gli strumenti di mercato per incentivare gli investimenti e l’innovazione GME - Assolombarda
Agenda
Hedging: A definition and practice
Energy sector opportunity for hedging
Utility companies starting to take advantage of
Energy Insights
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Drivers of Utility Adoption of Renewable
Energy
Historical
– Regulatory fiats (e.g. RE targets) – Feed-in laws & quota obligations – Government subsidies
– Public relations
A new opportunity
– Providing a means of protection against possible losses from volatility of fossil fuel prices (and even supply)
Hedging: A definition (or two)
Merriam-Webster Dictionary:
– “A means of protection or defense (as against financial loss)
– “A securities transaction that reduces the risk of an existing investment position”
– “To take compensatory measures so as to counterbalance possible loss” Webtrading.com
– “Taking a position in a futures market opposite to a position held in the cash market to minimize the risk of financial loss from an adverse price change” Wikipedia.it
– “Con il termine inglese di hedging si fa riferimento, in ambito finanziario, ad una strategia d'investimento disegnata per ridurre il profilo di rischio di un investimento mediante l'utilizzo di strumenti derivati quali opzioni put e call, vendite allo
scoperto e contratti future e forward. L'utilizzo di tali strumenti finanziari consente di ridurre la volatilità di un portafoglio riducendo di conseguenza la possibilità di perdite. Una strategia di hedging può inoltre permettere di assicurarsi una
performance predeterminata (profit lock-in) anche in presenza di movimenti di mercato opposti a quelli previsti”.
Hedge Funds, though, not hedging, but speculating
Why Hedge in Electric Utility Industry?
Volatility of fossil fuels are the highest of any commodities
– For that reason alone, users of natural gas have increasingly looked to hedge natural gas costs through direct
contracting measures
But recent events creating more risk than traditional approaches can handle
– Emissions Trading Scheme
– Winter storms
– Geopolitical concerns (e.g. Russia, Middle East)
– LNG risks not to be ignored
Global climate change threat – physical, financial, and regulatory – offers great rationale for hedging
Prior Work on Hedging Largely Ignored
For roughly 15 years, Shimon Awerbuch
(
www.awerbuch.com
) pioneered the concept of reducing
portfolio risk through the use of RE
–
“Investors hold efficient, diversified, balanced portfolios – best
hedge against uncertain future.”
–
“Risk affects value and economic expectations
Gas variable rate mortgage”
–
“Engineering kWh cost estimates ignore risk”
–
“Renewables question not if – but only how much
Awerbuch’s Calculations Turn Conventional
Economics on Its Head
Prior Work on Hedging Largely Ignored (or was
it?)
(cont.)
Ryan Wiser & colleagues at U.S. Lawrence Berkeley National
Laboratory (
http://eetd.lbl.gov/ea/EMS/
) have produced a series of
detailed analyses as well
– “Gas prices are high, volatile, unpredictable, and diversification with RE can help hedge these risks”
Directly hedge gas costs (company-specific)
Reduce gas consumption and prices (societal)
Work has focused on attempting to quantify value of RE as hedge
– Recommends developing a base case for future price of natural gas,
using “forwards”, not forecasts, which in the past have created bias away from Renewables
– End of 2005 value calculated: RE risk premium = $0.016/kWh – December 2006 calculation: RE risk premium = $0.005/kWh – 2007: RE risk premium = $0.0049/kWh
LBNL: NYMEX forward prices exceed AEO
forecasts, 2008-2030
Utility Case Study: MidAmerican Energy
Signed first wind deal in 1999 with Enron Wind (Zond) for a power
purchase agreement from 112.5 MW
MidAmerican Holdings taken private in 2000 by Berkshire Hathaway
– 54% coal
– 29% natural gas or oil
– 9% renewable (695 MW total, nearly all new since acquisition)
– 8% nuclear
In 2003, MidAmerican Energy Company (MEC), moved to diversify its company-owned generation portfolio
– ~16% renewables by end of 2008
– MidAmerican Holdings will have 20% renewables by end of 2008
0 2 4 6 8 10 12 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 $/Mmbtu
Historic spot pric e June 2003 futures pric e
The context for MidAmerican Energy’s initial
wind investment
The details on MEC’s wind splurge
In 2003, MEC decides to develop and
own
a 310-MW wind project in
Iowa
– Along with a 790-MW coal project and a 540-MW CCGT
Expanded wind project by 50 MW in 2004
Requested additional 545 MW buildout in April 2006; more in 2007
All told: MEC owns, is developing, or contracts for 1,244.3 MW
of wind power
MEC now ranks #1 in U.S. list of regulated utilities in wind ownership
– FPL’s unregulated subsidiary owns more; sells output under PPAs
How does the company’s investment look now?
The Benefits of MidAmerican’s Wind Hedge
0 2 4 6 8 10 12 14 16 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $/MmbtuFinal monthly settled price May 9, 2007 futures price June 2003 futures price
The details on MEC’s wind splurge
In 2003, MEC decides to develop and
own
a 310-MW wind project in
Iowa
– Along with a 790-MW coal project and a 540-MW CCGT
Expanded wind project by 50 MW in 2004
Requested additional 545 MW buildout in April 2006; more in 2007
All told: MEC owns, is developing, or contracts for 1,244.3 MW
of wind power
MEC now ranks #1 in U.S. list of regulated utilities in wind ownership
– FPL’s unregulated subsidiary owns more; sells output under PPAs
How does the company’s investment look now?
– Pretty smart . . .
Main Barriers to Greater Use of RE Hedge
Strategy
Renewable energy cost concerns
Perceived RE operational shortcomings
Grazie!
Roberta Bigliani
Research Director, EMEA
rbigliani@energy-insights.com
www.energy-insights.com
