Whither IPEX in risky times? Rome, 7 December 2007 Nigel Hawkins Responsabile Bidding, Enel Produzione.

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Presentation transcript:

Whither IPEX in risky times? Rome, 7 December 2007 Nigel Hawkins Responsabile Bidding, Enel Produzione.

IPEX has worked well since it went live on 31 March 2004 Liquidity - high Spot Price – a reference for annual contracting Investment in new capacity

Market liquidity – MGP vs Contracts Markets up until 30 Nov TWh/annum

Investment in new capacity (*) Enel estimate(*) Full capacity of plant GreenfieldConversions MW 16,32012,160 Total period Period characterised by new greenfield capacity of around 16GW New entrants concentrated in the North zone in the initial phase; from 2006 significant presence also in the South Greenfield Conversions

Risk – Europe susceptible to fuel price increase 59% 95% 80% 100% 98% 2025 Natural gas Oil 82,7% 98,8% Solid Fuels Source: European Energy & Transport – Trends to 2030 Relationship between net import by source and gross consumption Dependence on foreign fuel supplies Total

Risk - fuel prices Oil Gas Coal CO 2 *NBP (National Balancing Point): Hub in UK; TTF (Title Transfer Facility): Hub in Olanda **API2: CIF ARA (Amsterdam Rotterdam Anversa), API4: FOB Richards Bay

Faced with risk….. Faced with risk the natural choice of market participants is to contract forward – both fuel purchases and power sales. ….eliminating market risk, converting to physical risk.

Faced with risk….. Faced with risk the natural choice of market participants is to contract forward – both fuel purchases and power sales. ….eliminating market risk, converting to physical risk. Failure to deliver physically would lead to the need to buy back »in IPEX day ahead at the PUN, or else »at the penal imbalance price

Faced with risk….. Faced with risk the natural choice of market participants is to contract forward – both fuel purchases and power sales. ….eliminating market risk, converting to physical risk. Failure to deliver physically would lead to the need to buy back »in IPEX day ahead at the PUN, or else »at the penal imbalance price To avoid exposure to the PUN the producer requires liquidity in the forward markets for products within year – monthly, weekly, daily, hourly. What is the liquidity of such products?

Market liquidity – OTC Weekly energy transactions in 2007

Market liquidity – OTC Transactions in November 2007

What does the market need? Freedom of Choice Liquidity Reference Price System Security

What does the market need? Freedom of Choice Liquidity Reference Price System Security Development of liquidity of financial and physical products in all timescales