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Gas and Power Assets: Management and Portfolio Optimisation with PLEXOS® Dr Christos Papadopoulos Regional Manager Europe Energy Exemplar (Europe) Ltd.

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Presentation on theme: "Gas and Power Assets: Management and Portfolio Optimisation with PLEXOS® Dr Christos Papadopoulos Regional Manager Europe Energy Exemplar (Europe) Ltd."— Presentation transcript:

1 Gas and Power Assets: Management and Portfolio Optimisation with PLEXOS® Dr Christos Papadopoulos Regional Manager Europe Energy Exemplar (Europe) Ltd 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

2 1.Introducing Energy Exemplar and PLEXOS® 2.Integration of the physical and financial markets in PLEXOS 3.Long term co-optimisation of power and gas assets 4.Exploring different modelling approaches for medium to long term hedging decisions 2 Content 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

3 3 Energy Exemplar® Commercial since 1999 Focused on PLEXOS® for Power Systems software Global client base served from three locations: Adelaide, Australia London, UK California, USA 20% staff with Ph.D. level qualifications spanning Operations Research, Electrical Engineering, Economics, Mathematics and Statistics By the beginning of 2013, worldwide installations of PLEXOS exceeded 700 at over 135 sites worldwide, in 32 countries. 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

4 4 What is PLEXOS®? Proven power market simulation tool Uses mathematical programming, optimisation and stochastic techniques Robust analytical framework, used by: Energy Producers, Traders and Retailers Transmission System /Market Operators Energy Regulators/Commissions Consultants, Analysts and Research Institutions Power Plant Manufacturers and Construction companies Power system model scalable to thousands of generators and transmission lines and nodes 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 PLEXOS® is a MILP-based next-generation Energy Markets/Systems simulation and optimization software.

5 Power Market Modelling, Simulation and Analysis - Short & Long term: Price Forecasts based on power system operational constraints and market fundamentals, at nodal and regional level. Detailed operational planning and dispatch optimization while modelling complex renewable-hydro-thermal and transmission Renewable integration analysis Investment planning and analysis Valuate and Optimise new generation and transmission builds and retirements – what, when, where? Assessing the effectiveness of investment decisions and policies Portfolio Optimization and Valuation 5 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 What can be achieved with PLEXOS® (1)

6 Risk management via scenario analysis, stochastic modelling and optimization: Optimal resource allocation decisions (fuel, heat, capacity) over the long or short term subject to uncertainty (e.g. volatility in fuel prices, wind, hydro inflows, demand) Fuel, Emissions and hedge contract evaluation and analysis Transmission and Ancillary Services/Balancing Analysis Regional, Zonal or Nodal Congestion Forecast and Management Security Constrained Dispatch (N-x) Optimal power flow modelling Interconnector Modelling Co-optimization of Energy/Ancillary Services and Gas Markets and Energy dispatch 6 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 What can be achieved with PLEXOS® (2)

7 1.Introducing Energy Exemplar and PLEXOS® 2.Integration of the physical and financial markets in PLEXOS® 3.Long term co-optimisation of power and gas assets 4.Exploring different modelling approaches for medium to long term hedging decisions 7 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 Content

8 8 What is an Energy Portfolio? Within the energy industry a portfolio can be divided into two distinct parts: Physical Portfolio: represented by physical assets - Power Plants, Gas Fields, flow (power/gas) lines, Storages etc. Contracts Portfolio: consisting of contract assets - Financial and Physical contracts such as futures, forwards, swaps, options and FTRs but also PTRs contracts for electricity and FTS for gas. While the optimisation of a contract portfolio in a traditional financial market has been well debated, problems can arise when optimising the entire power portfolio. PLEXOS® emulates how the market operates but more importantly the real electricity price formulation mechanism. 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

9 9 Energy Assets Portfolio Optimisation 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 In PLEXOS®, Portfolio Optimisation accounts for both Physical and Financial Assets.

10 10 Generator Class Thermal generators polynomial heat rate modelling Start costs vary by fuel state Energy Ramp constraints CCGT operation GT & steam turbine optimisation Combined heat and power Plants Heat production from a boiler Heat Storage option Hydro & pumped storages allow long-term decomposition via targets or water values to shorter more detailed phases Wind, Solar, Geo-thermal & others How can the physical market be represented in PLEXOS? (1) 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

11 11 Fuel Ability to model price to be a variable Min and Max off-take quantities Transmission Lines Net Transfer Capacities Wheeling Charges Line Ramp Rates Nodes, Regions & Zones Demand Scenarios Demand Side Participation 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 How can the physical market be represented in PLEXOS? (2)

12 12 Integration of the Contracts Portfolio (1) Physical Contracts Multi-step Price/Quantity Min/Max Generation Financial Contracts CFDs Caps Floors Collars Fuel Contracts Multi-step Price/Quantity Take-or-Pay Transmission Rights Contracts Financial Transmission Rights (FTRs) Settlements Residue Auctions (SRAs) 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

13 13 Markets Class Can be used to model not only forward & futures (financial) markets but also capacity, fuel, ancillary services (physical) markets. Optimisation of sales and/or purchases to/from Companies Forward Markets can be optimised first in a two- stage optimisation process,then the physical market is solved Company Class Allows the bundling of physical and financial assets Various company wide reporting options available 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 Integration of the Contract Portfolio (2)

14 How can PLEXOS® be used in Portfolio Optimisation & Hedging? Setting up the forward market in PLEXOS A market must be linked to a node. Companies can be linked to report revenue/costs back to each portfolio owner. 14 – Forward markets are solved first to determine sales/purchases then these levels are fixed while the physical markets are solved. 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

15 1.Introducing Energy Exemplar and PLEXOS® 2.Integration of the physical and financial markets in PLEXOS 3.Long term co-optimisation of power and gas assets 4.Exploring different modelling approaches for medium to long term hedging decisions 15 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 Content

16 PLEXOS® Gas Modelling (2013) 18/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets

17 PLEXOS® - Co-optimisation of both Power and Gas Portfolio Assets. 18/04/2013 Goal is to provide modellers an integrated gas and electricity model that is straight-forward for power market modellers to understand and use. Short and long term simulations Both system-planner (cost minimisation) and strategic (maximise profit) solutions Investment planning: Gas field, storage, and pipeline potential candidates defined with: Capital cost of construction (builds cost, WACC, economic life, project start date, min/max build constraints) Operating costs (fixed and variable) 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets

18 Simulation Phases in PLEXOS® LT Plan – Optimal investment PASA – Optimal reserve share MT – Resource Allocation ST – Chronological Unit Commitment New Builds/retirements Maintenance Schedule Operating Policies Detailed by-period results 1 year 4 years 30 years 18 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

19 LT Plan - Long Term Capacity Expansion Planning Finds the optimal combination of generation and transmission new builds and retirements that minimizes the net present value of the total costs (incl. fixed and variable operating costs) of the system over a long-term planning horizon. The following types of expansion/retirements and features are supported: Building and retiring generating plants and transmission lines Multi-stage build projects Expanding the capacity on existing transmission interfaces Taking up new physical load /generation contracts Deterministic or stochastic optimization 18/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets

20 PASA - Projected Assessment of System Adequacy PASA is a simulation that focuses on the balance of supply and demand in the medium term. When used in combination with MT Schedule and/or ST Schedule, the primary purpose of the PASA is to determine, where and when maintenance outages should occur. It can model planned and random outages of generation plants and transmission lines, and its severity In multi-region models PASA calculates the optimal amount of reserve that should be shared between regions using the transmission network. (Equalizing regional capacity reserves done using quadratic programming formulation.) 18/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets

21 MT Schedule - Medium Term Scheduling and Simulation MT Schedule is used to give fast results for medium to long-term studies. The MT Schedule handles all user-defined constraints including those that span several weeks, months, or years. This might include: Fuel off-take commitments e.g. gas take-or-pay contracts Energy limits, Emission quotas Long-term storage management taking into account inflow uncertainty MT Schedule: Gives the option of Load Duration Curves or Chronological modelling approach, similar to that in LT Plan. Each constraint is optimised over its original timeframe and the MT Schedule to ST Schedule Bridge algorithm converts the solution obtained, e.g. a storage trajectory, to targets or allocations for use in the shorter step of ST Schedule Can model competitive behaviour of portfolios over the medium term. (Sophisticated game-theoretic behaviours like Nash-Cournot competition or simply recovery of fixed costs.) 18/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets

22 ST Schedule ST Schedule is mixed-integer programming (MIP) based chronological optimization. It can emulate the dispatch and pricing of real market- clearing engines, but it provides a wealth of additional functionality to deal with: unit commitment; constraint modelling; financial/portfolio optimization; and Monte Carlo simulation. ST Schedule provides two methods for modelling the chronology: Full Chronology Every trading period (interval) inside the ST Schedule horizon is modelled explicitly. (Interval can be 1min to 24hrs in length.) Typical Week One week is modelled each per month in the horizon and results are applied to the other weeks. 18/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets

23 1.Introducing Energy Exemplar and PLEXOS® 2.Integration of the physical and financial markets in PLEXOS 3.Long term co-optimisation of power and gas assets 4.Exploring different modelling approaches for medium to long term hedging decisions 23 Content 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

24 24 Energy Portfolio Optimisation with PLEXOS® The return of an energy portfolio is affected by four major sources of uncertainty; Power Spot Prices Demand (Power/Fuel) Inflows Fuel Prices 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

25 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets A hedge is a fixed price instrument (physical or financial) whose value moves opposite the market movement and thereby mitigates the risk of the market moving against you, at the cost of the lost benefit when the market moves to you. Hedges can include e.g.: Financial gas contracts Fixed price coal contracts Generator tolling agreements etc. Finding the appropriate hedge strategy is a process of measuring the unhedged risk, and finding a portfolio of hedges that constraints the risk to a desired level, i.e.: 5% of total generation cost Hedge Planning

26 Spot Prices Use the Scenario Class in PLEXOS to adjust out input parameters Demand, Fuels & Inflows Represent inputs using stochastic modelling via the Variable Class Provided with user-defined samples with an assigned probability for each sample (exogenous) or we can create a endogenous sample using an expected profile that can be scaled up or down a specified distribution (endogenous). 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 How can PLEXOS® be used in Portfolio Optimisation & Hedging?

27 27 Example of a user-defined endogenous profile entered in PLEXOS® to model the forward power price stochastically. 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 How can PLEXOS® be used in Portfolio Optimisation & Hedging?

28 28 How can PLEXOS® be used in Portfolio Optimisation & Hedging? Demand Profile for fictional region R1 for 2011 Generators sorted by technology 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013

29 29 COMPANY ACOMPANY B COMPANY C 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 How can PLEXOS® be used in Portfolio Optimisation & Hedging?

30 Including the Financial Contract Class Used to represent CfDs in a Gross Pool or Forward Contracts in a Net Pool CfDs can be either one-way (e.g Company and exchange) or two-way contracts (Between two participating companies – Generator and Retailer) A financial contract can be linked to generators so that contract quantity is dependent on one or more generators generation levels. PLEXOS® can stochastically model either contract quantity and/or price as a variable so we can model different mix of contract quantities and prices to determine the most profitable result for our 3 companies. 30 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 How can PLEXOS® be used in Portfolio Optimisation & Hedging?

31 18/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets Financial Contract PropertyValueUnitsTimeslice RETAIL #1Quantity700MWPEAK RETAIL #1Quantity550MWOFF-PEAK RETAIL #1Floor Price$55$/MWh RETAIL #1Cap Price$55$/MWh CfD Example: In a Gross Pool this example defines a contract-for-difference (CfD), or two-way contract, with a strike (floor=cap) price of $55/MWh. The contract guarantees the generator receives at least this price for generation, and at the same time it guarantees that the load will pay no more than this price for the quantities shown. How can PLEXOS® be used in Portfolio Optimisation & Hedging?

32 Lets assume each company has 10 different contracting quantity levels available to them. Starting from 0MW up to 1,000MW increasing in 100MW increments. Each 100MW increment will be a separate Profile in PLEXOS. Gross Pool If Region Price is below the Floor Price then: Settlement = (Floor Price – Region Price) x Settlement Quantity If Region Price is above the Cap Price then: Settlement = (Region Price - Cap Price) x Settlement Quantity 32 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 How can PLEXOS® be used in Portfolio Optimisation & Hedging?

33 18/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets How can PLEXOS® be used in Portfolio Optimisation & Hedging?

34 17/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets How can PLEXOS® be used in Portfolio Optimisation & Hedging? CFD Strike price modelled with samples using base profile with 20% error Std Dev and 50% Auto Correlation Case 2: Physical market and allow hedging with Financial Contracts Contract Quantity modelled using set profile in bands of 100MW blocks representing each sample Endogenous Profile Exogenous Profile

35 17/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets How can PLEXOS® be used in Portfolio Optimisation & Hedging? Case 2: Physical market and allow hedging with Financial Contracts – COMPANY A Sample Contract Amount (MW) Generation (GWh) Pool Revenue ($000) Net Contract Settlement ($000) Net Pool Revenue ($000) Sample 11002,84770,04990670,955 Sample 22002,84670,0231,63671,659 Sample 33002,84970,0932,93073,023 Sample 44002,84870,0602,63072,690 Sample 55002,85770,2924,81675,108 Sample 66002,84269,9174,08073,998 Sample 77002,84770,0276,19676,223 Sample 88002,85270,1557,05277,207 Sample 99002,85670,2569,16579,420 Sample 1010002,84770,02912,41582,444

36 17/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets How can PLEXOS® be used in Portfolio Optimisation & Hedging? Case 2: Physical market and allow hedging with Financial Contracts – COMPANY B Sample Contract Amount (MW) Generation (GWh) Pool Revenue ($000) Net Contract Settlement ($000) Net Pool Revenue ($000) Sample 110083721,43890622,344 Sample 220083721,4551,63623,091 Sample 330083521,3972,93024,327 Sample 440083721,4382,63024,068 Sample 550082821,2344,81626,050 Sample 660084321,5884,08025,668 Sample 770083821,4646,19627,660 Sample 880083221,3227,05228,374 Sample 990082821,2379,16530,402 Sample 10100083821,48212,41533,898

37 17/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets How can PLEXOS® be used in Portfolio Optimisation & Hedging? Case 2: Physical market and allow hedging with Financial Contracts – COMPANY C Sample Contract Amount (MW) Generation (GWh) Pool Revenue ($000) Net Contract Settlement ($000) Net Pool Revenue ($000) Sample 11002,98171,83690672,742 Sample 22002,98271,8441,63673,480 Sample 33002,98171,8322,93074,762 Sample 44002,98171,8242,63074,454 Sample 55002,98071,7944,81676,610 Sample 66002,98171,8174,08075,898 Sample 77002,98171,8316,19678,027 Sample 88002,98271,8457,05278,897 Sample 99002,98171,8279,16580,991 Sample 1010002,98071,81112,41584,226

38 38 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 How can PLEXOS® be used in Portfolio Optimisation & Hedging? Physical market and allow hedging with Financial Contracts (Mean of 10 samples) Pool Revenue ($) Generation (GWh) Net Contract Settlement($) Net Pool Revenue ($) Company A69,494,0002,78925,034,00094,528,000 Company B22,542,0008833,959,00026,501,000 Company C71,218,0002,95318,032,00084,250,000

39 Recognises that Financial Contracts can effect the bidding behaviour of generators e.g. the higher the generating companys contract cover the more likely they are to bid close to marginal cost. When the property is enabled additional constraints are added to ensure that the company generates to meet contract level if economic to do so. This in turn has the effect of moving the pool price back towards the contract prices over the duration of the simulation. 39 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets 18/04/2013 How can PLEXOS® be used in Portfolio Optimisation & Hedging? Including the Competition Object in PLEXOS®

40 17/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets EE European Datasets (CWE Market)

41 17/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets EE European Datasets (CWE Market)

42 17/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets EE European Datasets (CWE Market)

43 17/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets EE European Datasets (CWE Market)

44 18/04/2013 2nd Intelligent Hedging & Portfolio Optimisation for the Energy Markets Thank you for your time, attention and the opportunity.


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