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ETRM
Internal calculations by OpenLink suggest that with the have been possible. It is, therefore, a particularly effective way
adoptionofitsintegratedsolution,arelativelysmallandsimple ofdemonstratinghowpowerfulanintegratedapproachcanbe
gasportfoliocouldincreaseprofitsbyaroundhalfapercentage in providing an invaluable decision support tool for traders.
point, while for a more complex €1 billion diversified energy UsingasolutionthatintegratesETRMwithoptimisationcan
portfolio,thefigurecouldamounttoseveralpercentagepoints. also help with operational risk management. It cuts down on
WhatmakestheOpenLinksolutiondifferentfromothervendor human errors associated with manual input and exchange of
offerings is that, in recognition of the inherent uncertainty of data between systems. What’s more, it facilitates better
forecasting due to extreme volatility, it can compliance, control, accounting and
link together simulation with optimisation
The European gas market
auditing. It also promotes greater
so that an optimisation can be embedded
withineachMonteCarlorun.Financialand
is likely to witness
transparency around the assumptions,
parameters and limitations of
physical contracts, different commodities
tremendous changes
optimisation results.
and markets, together with storage and in coming years This latter point is especially important
assetsareallcapturedwithinthesystem. because by giving optimisation a more
Thisapproachallowstraderstogainadeeperunderstanding prominent role in the way organisations manage their
ofcurrentsensitivitiesintheirbook,whichisobviouslyagreat enterprises, energy firms may have unwittingly created a key-
benefit when it comes to hedging. Sensitivity analyses could, man risk. In some organisations, optimisation is regarded as
for example, be used to verify how long the planned use of important, but somehow obscure. The result is that all the
particular resources remains optimal given changes in pricing knowledge resides with one particular ‘spreadsheet magician.’
at hubs, or in other markets. Over reliance on any individual for such a critical function is
The linking together of simulation and optimisation also obviouslyproblematic.
creates a more meaningful picture of how a portfolio might
perform in different future scenarios and that provides a Shifting Landscape Makes Holistic View Imperative
framework within which more optimal hedging decisions and The European gas market is likely to witness tremendous
portfolioconstructioncanthrive.Thismorepracticalapproach changes in coming years as demand for gas-fueled power rises
to optimisation and scenario analysis is underpinned by the due to an increasing population and growing environmental
integration of the optimiser and ETRM systems, and an concerns.Greaterharmonisationofmarketrulesandstructure,
ongoing exchange of valuations, reference data, forward amigrationtowardsaGermancentralhubforgastradingand
curves and other information between the two. services, new pipelines, more use of liquefied natural gas,
Importantly,thisintegratedapproachenablestraderstomove changing interdependency between oil and gas prices and
beyondtheclassicalparadigmofthinkingabouttherisk-reward increased liquidity in exchange-traded and OTC markets will
profile of complex positions in purely option-theoretic terms. all create both challenges and opportunities.
Taking account of the impact of different markets such as Against this backdrop, an integrated approach to trading
emissions, or the physical constraints on transportation, for and planning and an holistic view of risks has never been
example, can have a meaningful impact when deciding more strategically important. By ensuring that optimisation is
whether it makes more sense to buy or sell gas, or fire it for an integral part of this framework and not simply an adjunct,
electricityproduction.Similarly,optimisinginregardtodifferent more informed decision making is within grasp despite the
scenarios such as a spike in customer loads due to extreme ever changing complexities of the market.

weather, or supply disruption due to political tension, can
providetraderswithinsightfulstresstests.
Dr. Wolfgang Ferse is Executive Vice President,
OpenLink’s approach to optimisation can in some instances
Commodities & Energy Solutions with OpenLink. Dr. Ferse
lead to surprising insights. Indeed, with the more rigorous
holds a Masters degree and a PhD of Power Engineering
approach to optimisation that OpenLink has adopted, the
from Technical University of Dresden.
results generated by the system may not necessarily be
intuitive. With this in mind, back-testing by running an
Dr. Markus Seiser is Managing Director – Central Europe,
optimisation with real historical portfolio and market data is
with OpenLink. Dr. Seiser majored in Electrical Engineering
instructive.Inthisway,back-testingcanbeusedto‘revisit’past
at the Graz University of Technology in Graz, Austria.
experiences and demonstrate how better decision making may
www.olf.com
78 worldPower2009
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