Objective: To provide a practical introduction to the hedge markets, and techniques and methods for hedging price risk in electricity markets, with an emphasis on developing skills in working with and applying common forms of hedge contract.
The course includes a number of rounds of our hedging game which challenges participants to develop and manage a hedging strategy for a large consumer or a generator.
Prerequisites: EL0, with ELNP1 also being useful background. Alternatively, familiarity with key elements of the electricity supply system including the Grid, metering and various types of generation. Some familiarity with the behaviour of prices from the spot market is also useful.
The course includes a number of rounds of our hedging game which requires the players to make hedging decisions and observe the outcomes. It’s a challenge and a lot of fun!
Video: Prior to the course, participants should watch this short video on "hedging concepts".
What is a hedge?
Common supply arrangements – ‘contracts for differences’, ‘fixed price variable volume’
Volatility in the electricity spot market
Attitudes to risk, risk premiums
- Hedging Electricity
Securities Markets Act
Contracts for differences
Swaps and options
Futures and swaptions
Financial transmission rights (FTRs)
The spot market’s ‘losses and constraints surplus’
- Hedging Strategy
Location factor adjustments
Optimum generation with hedges in place
Timing of hedge transactions
Building a “hedge book”
The forward curve
The role of forecasts
Pricing and valuing futures, swaps and options
Modelling hedge strategies
- The Hedge Market
The hedge market in New Zealand
Hedge market liquidity
The ISDA agreement
Front, middle and back offices
Fair value and hedge accounting
NB: Course material may vary from the above on the day.
Prices shown below are GST exclusive