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1 HSBC Utilities Day November 27, 2008 Manoel Zaroni Torres - CEO Tractebels Hydro Allocation Process.

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Presentation on theme: "1 HSBC Utilities Day November 27, 2008 Manoel Zaroni Torres - CEO Tractebels Hydro Allocation Process."— Presentation transcript:

1 1 HSBC Utilities Day November 27, 2008 Manoel Zaroni Torres - CEO Tractebels Hydro Allocation Process

2 2 At CCEE the resources of a generation co. are compared to its sales on a monthly basis. Resources stand for: Purchases from third parties Thermal generation Hydro energy allocated Difference between resources and sales is settled at Spot Price (PLD). Tractebel 's energy availability is almost fully contracted up to Tractebel is entitled to fuel reimbursement by CDE when coal-fired plants are dispatched due to merit order or inflexibility. Background

3 3 Thermal Generation Exposure to Spot Prices 2008 Assured Energy (Port. MME 303) PLD Exposure ~ 375 avgMW Inflexibility (CDE) ~ 375 avgMW t Note: figures referred to CCEEs settlement point. Maximum Dispatch

4 4 ~ 375 avgMW Dispatch due to inflexibility (based on the purchase of 200,000 tons of coal per month) Thermal Substitution Energy (Merit) Thermal Assured Energy Settled by PLD (expenses) TBLE is entitled to coal reimbursement (by CDE) 2008 Maximum Dispatch ~ 280 avgMW Settled by PLD (revenue) Thermal Dispatch (Merit) Inflexibility t 1 2 BRL/MWh Permanence PLD Curve Thermal Substitution Cost 1 - Minimal Exposure Cost 2 - Maximum Exposure Cost Thermal Generation Exposure to Spot Prices

5 5 Year Seasonalized Hydro Assured Energy Maximum Dispatch Real Dispatch Allocated Energy (MRE) Hydroelectric generation above or below the Seasonalized Assured Energy is valued by MRE Tariff (~ R$ 8/MWh) Allocated Energy above or below the Seasonalized Assured Energy is settled by PLD Secondary Energy (MRE): settled by PLD (revenue) GSF < 1 (MRE): settled by PLD (expenses) t The impact on the results is less significant than the thermal substitution Hydro Generation Exposure to Spot Prices

6 6 Mechanisms to Mitigate Thermal Plants Exposure Hydro Assured Energy Total Sales Contracts Purchase Contracts Thermal Inflexibility PLD Exposure Merit Thermal Generation ok Net Buyer at CCEE Net Seller at CCEE... and so on m m+1m+2 m+3 Portfolio x Resources An appropriate monthly allocation of the hydro resources over the year can mitigate the exposure arising from the thermal substitution energy to be purchase at spot price

7 7 PLD in a years 1st half is likely to be lower than in 2nd half Spot Price History Data

8 8 Year X 1 Hydro Assured Energy Thermal Inflexibility Thermal Assured Energy Sale Contracts PLD Expectation Assured Energy can be allocated monthly over year x 1 Decision is taken in Dec. Year x 0 (unchangeable afterwards) t Purchase Contracts Monthly Allocation of Hydro Resources

9 9 Year X 1 Hydro Assured Energy Thermal Assured Energy Sale Contracts Net Buyer at CCEE Net Seller at CCEE Thermal Dispatch PLD Expectation Thermal Inflexibility t Purchase Contracts Monthly Allocation of Hydro Resources

10 10 Regulatory uncertainties Risk aversion mechanisms (i.e., Risk Aversion Curve and Target Level) Changes in PLD pricing model Out-of-merit thermal dispatch GSF resulting from overall hydro allocation Unexpected unavailability of power plants Price/availability of short-term energy purchased from third parties to (i) offset a net buyer position and (ii) leverage future overallocation Trade off: sales of short-term energy at PLD+Δ% X future overallocation leverage Decision Traps


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