Energy Scenario Management
Energy Scenario Management Figure 3: Information & Data Flow Between Modules
with storage and assets, are all captured within the system. A paradigm shift is needed
in the way many energy companies integrate their businesses. Risk groups must realign their resources and put greater emphasis on implementing risk models that can serve as decision- support tools to design and evaluate hedging and trading strategies based on potential variability
of cashflow,
earnings and other metrics. In this way traders/managers gain a deeper understanding of current sensitivities in their book. Sensitivity analyses could, for example, be used to verify how long the planned use of particular resources remains optimal given changes in pricing at hubs, or in other markets. New advances in financial engineering and computational finance such as Least Squares Monte Carlo and Dynamic Programming allow for the widespread use of dynamic risk simulation solutions in energy firms. However, it is crucial that companies have the systems and risk management framework in place to implement and make sense of them.
Dynamic risk modelling is gaining growing acceptance in the marketplace
Another important and growing area where valuation and
risk models can improve the information to traders/managers is in financial reporting where new statements will require companies to take a more active market perspective. Island solutions are out and energy market participants need
to employ a fully integrated approach to their risk management requirements, particularly in view of additional regulation and reporting requirement coming their way. Dynamic risk modelling is gaining growing acceptance in the marketplace, especially in the optimisation of physical assets like storage facilities, pipelines, and power plants. Therefore, it is expected
68
that many energy firms will be gradually replacing their current risk and valuation models and ETRM/CTRM systems. Energy risk management has been based on unrealistic
assumptions regarding portfolio and market behaviour. Many ETRM systems have an inherent lack of integration to allow their users to fully optimise (using dynamic risk simulation- based tools etc.) the company’s true position. OpenLink have found a solution to the problem through its iOPT modules and Smart ETRM strategy, providing forecasting and optimisation capabilities as an extension to the Endur ETRM platform. ■
Guy Isherwood is Editor of WorldPower and Commodities Now magazine.
OpenLink’s energy platform – Endur – is a front to back-office solution for trading, risk management and operations in commodity markets. Built on OpenLink’s NGX Framework, Endur provides a comprehensive solution serving markets in electricity, natural gas and natural gas liquids, crude oil and refined products, precious and base metals, coal, weather, derivatives, emission, bandwidth, softs and FX. For more information go to:
www.olf.com
worldPower 2010
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