1. 1 Cigre Study Committee C5- Brazilia workshop Market Structures and Institutions RISK MANAGEMENT Svein Storstein Pedersen Convenor of TF C5-01-02

2. 2 Electricity as a Risky Commodity Basic Electricity regulation changed Division between competitive sector and the natural monoplies introduced Developing market institutions Tailor-made spotmarkets on national traditions together with the bilateral contracts Increased cross-border trading International harmonisation of national markets lacking New market participants In addition to the producers, the end-users and the traders enter the markets and get commercially exposed Spot and forward prices High volatility makes a profitable business for some and a risky business for all

3. 3 Liberalisation of Electricity Markets

4. 4 Risk Management of Electricity Possible definitions Risk: Costs of future uncertainty –Involves also technical, institutional and legal issues Risk Management: Cost-reduction tool –Risk Management of Electricity is a mixture of standard economical theory and tailor-made solutions based on the maturity of the actual electricity market

5. 5 TF C5-01-02 Risk Management Previous Cigre-work TF 38-05-09 Methods and tools for contracts in a competitive framework TF 38-05-12 Portfolio and Risk Management for Power Producers and Traders in an Open Market Final Report July 2001

6. 6 TF C5-01-02 Risk Management Scope of the new task force The new TF shall give a detailed exploration of risk management methods for market players in a competitive electricity market taking into account previous CIGRE work. The detailed scope of new TF should be discussed and decided by the participants at the first meeting. Previous to this meeting all the participants should be familiar with the previous CIGRE work.

7. 7 TF C5-01-02 Risk Management The detailed discussion of the scope (1) Type of contract portfolio Contracts defines the rights and obligations for a market participant. Trading portfolios consisting of only financial contracts are very different from portfolios consisting of physical generation. Transmission rights and tariffs Contracts offered from the grid owner/operator for the connection of a market participants and the corresponding rights and obligations for the use of the grid. Handling of congestions and risk management products for the use of the grid.

8. 8 TF C5-01-02 Risk Management The detailed discussion of the scope (2) Market institutions Mature markets includes more advanced financial contracts and thus more risk management flexibility Market imperfection The risk management methods might be very different for markets where some players may apply market power.

9. 9 TF C5-01-02 Risk Management Initial proposed timetable December 2003 – Develop and determine questionnaire April 2004 – Collect and compile information August 2004 - Discuss and determine scope of final report April 2005 – Discuss and prepare draft final report June 2005 – Final report

10. 10 TF C5-01-02 Risk Management Additional TF-members requested Nomination of TF-members from SC- members to the TF-convenor Asking for new nominations in addition to the existing ones Preferable time limit for new nominations: November 1st 2003