Risk Management in Power Markets Training Course

This groundbreaking training course will provide you with practical hands-on strategies for mitigating risk in power trading.  Developed by a power industry specialist, this course is the only programme of it's kind that focuses on helping you identify the risks and then formulate effective strategies for dealing with them.  It concentrates on the risk arising in liberalised and liberalising markets and what steps you can take to deal with them.  Packed with highly practical examples and case studies, this course will provide you with the perfect synergy between theory and practice.

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Day 1

Introduction

• Risk management evolution in the power industry
• Lessons from the credit crisis in 2008
• 10 golden rules for an effective risk management framework

Risks in the Power Business

• The electricity value chain
  – Fuels, generation, transmission and distribution, wholesale, carbon and retail
• Portfolio of contracts:
  – Forward sales
  – Retail supply
  – Fuel
  – CO2
  – Freight
  – Hedges etc.
• Sources of risk:
  – Market
  – Credit
  – Operational
  – Legal and regulatory
  – Business
  – Strategic
  – Reputation risk
• The power plant as a spread option

Scope of Framework

• Risk appetite and tolerance
• Corporate governance
• Risk metrics
• Risk policies
• Measurement and reporting

Putting Risk Management into Practice

• Determining the objective
• Mapping the risks
• Risk management instruments
• Constructing and implementing a practical strategy:
  – Static vs. dynamic strategy
• Performance evaluation

Governance and Risk Management

• Principles of good governance
• Roles and responsibilities in practice
• Risk limits and standard policies
  – Market risk and credit risk limits
• Standards for monitoring risks

Measurement Approaches

• Notional amount approach
• Price sensitivity measures derivatives
• What is Value at Risk (VaR)
• How to use VaR to limit risk in practice
• Need for stress testing and scenario analysis

Risk Capital and Risk-Adjusted Performance Measurement

• The need for risk capital
• RAROC (Risk Adjusted Return on Capital)
• Risk capital allocation
• Market, credit and operational
• Capital allocation:
  – Current trends in capital allocation in the energy industry
  – The capital allocation process

Day 2

Introduction to Derivatives

• What are derivatives and who are using them?
• The different instruments:
  – Forwards
  – Swaps
  – Spark spreads
  – Futures and options
• The forward curve
• Pay-off structures of different instruments

Forwards, Futures and Swaps

• Main characteristics of forwards, futures and swaps
• Convergence of forward prices to spot prices
• Clearing and margins: how does it work
• Forward spreads (time, commodity): calendar spreads, spark spreads, crack spreads
• How to use forward curve dynamics: contagion and backwardation

Getting to Grips with Options

• Option value drivers:
  – Underlying
  – Strike
  – Volatility
  – Interest rate
• European, American, Asian style options
• Put-call parity
• Implied volatility

Market Risk Management

• What are the key drivers on price?
• How does price risk arise?
• What causes price volatility?
• How does market structure impact on price?
• Limits to volatility

Market Risk Hedging Strategies

• Hedging against spot price risk
• Hedging and liquidity risk
• The optimal hedge ratio
• Roll-over hedge
• Option Greeks analysis
• Delta hedging
• Hedging volatility

Credit Risk Management

• Components credit risk
• Credit risk management in the energy industry
• Credit risk measurement building blocks
• Credit risk mitigation
• Credit risk in trading books:
  – Credit charging

Operational Risk Management

• What are the operational risks:
  – People, process, systems and technology risk
• Measurement approaches
• Eight steps for operational risk management
• Mitigating operational risk:
  – Insurance against operational risk
• Monitoring and controlling 

During two intensive days you will:

• Use topical situations to illustrate the theories of risk management in power trading - a highly practical approach
• Learn from an international power expert who can translate jargon into clear and relevant information
• Learn how to identify risks and gain a practical approach to mitigating them using current real-life examples
• Get to grips with a number of pricing and risk modelling techniques which will prove invaluable to you in the future