Analysis of future electricity prices Nina Dupont Mikael Togeby Ea Energy Analyses
Content Introduction Data Descriptive presentation System price Analytical Impact by inflation, actual spot price, hydro, coal and CO 2 price Conclusion Extra CfD
INTRODUCTION
Research question How accurate are the forward prices? What can explain the forward prices? Are they biased towards higher prices than realised?
Two steps To hedge price for e.g. DK1 in 2016 Forward contract for system price (2016) CfD system price to DK1 (2016)
Data Yearly financial contracts (Nasdaq) System price and CfD s (from system price to DK1 and DK2) Price and volume per day from 1.1.2005 to 7.12.2015 Realised spot prices (Energinet.dk) Same periode as above Note that 2015 only covers until 7.12.2015 Hydro data (Nord pool) Reservoir content and inflow Weekly value 2005 to 2015
Financial contracts Here we focus on yearly contracts Until May 2006: Three years ahead Until February 2013 five years ahead After March 2013: 10 years ahead Other products ( cascading ): Quarterly Monthly Weekly Daily
Observation in data set Product (System price) ENOYR-2006 ENOYR-2007 ENOYR-2008 ENOYR-2009 ENOYR-2010 ENOYR-2011 ENOYR-2012 ENOYR-2013 ENOYR-2014 ENOYR-2015 Historical observations of trade 2005: 1 year 2005-2006: 2 years 2005-2007: 3 years 2006-2008: 3 years June 2006-2009: 3.5 years June 2006-2010: 4.5 years 2007-2011: 5 years 2008-2012: 5 years 2009-2013: 5 years 2010-2014: 5 years First in 2018 more than 5 years history will be available. On 2023 10 years history will be available.
Conclusion (preview) Forwards for 2016-2025 are nearly equal (in real prices) Forwards tend to be above realised prices (20-60% 3 to 5 years before) Liquidity is very low for forward more than 2 years ahead Forward price is clearly linked to the daily spot price (or rolling average) Very little information about the expected price, e.g. in 2020 or 2025, can be derived from the forward prices
SYSTEM PRICE
System price An artificial price: The spot price for the entire Nord Pool area if there were no congestion Area definition: Nordic area Main function of system price is to act as a reference for the financial contracts
Annual system price [EUR/MWh] Annual system price and forwards 60 50 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 System price Forward price (of 1st week of December 2015)
Closing price [EUR/MWh] Monthly closing price of the system 80 Delivery year - 2006 Delivery year - 2007 70 Delivery year - 2008 Delivery year - 2009 60 Delivery year - 2010 Delivery year - 2011 50 40 30 20 10 0 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Trading month Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 Delivery year - 2015 Delivery year - 2016 Delivery year - 2017 Delivery year - 2018 Delivery year - 2019 Delivery year - 2020 Delivery year - 2021 Delivery year - 2022 Delivery year - 2023 Delivery year - 2024 Delivery year - 2025 Months with no trade have been excluded.
261 256 251 246 241 236 231 226 221 216 211 206 201 196 191 186 181 176 171 166 161 156 151 146 141 136 131 126 121 116 111 106 101 96 91 86 81 76 71 66 61 56 51 46 41 36 31 26 21 16 11 6 1 Error [EUR/MWh] Weekly error in system price for closed products 40 30 20 10 0-10 -20 Delivery year - 2006 Delivery year - 2007 Delivery year - 2008 Delivery year - 2009 Delivery year - 2010 Delivery year - 2011 Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 Delivery year - 2015-30 Weeks before product closing Note that for 2015 only the first 11 months of the realised price have been included (will be updated in January) Months with no trade have been excluded.
261 257 253 249 245 241 237 233 229 225 221 217 213 209 205 201 197 193 189 185 181 177 173 169 165 161 157 153 149 145 141 137 133 129 125 121 117 113 109 105 101 97 93 89 85 81 77 73 69 65 61 57 53 49 45 41 37 33 29 25 21 17 13 9 5 1 Average of error (2006-2015) [%] Average of error in system price 120% 100% 80% 60% 40% 20% 0% Weeks before product closing Note: 8 observations with 3 years (156 weeks) before closing. 4 observations with 5 years Months with no trade have been excluded. Especially relevant for products with 3 and 4 years horizon.
261 257 253 249 245 241 237 233 229 225 221 217 213 209 205 201 197 193 189 185 181 177 173 169 165 161 157 153 149 145 141 137 133 129 125 121 117 113 109 105 101 97 93 89 85 81 77 73 69 65 61 57 53 49 45 41 37 33 29 25 21 17 13 9 5 1 Average of absolute error (2006-2015) [%] Average of absolute error in system price 120% 100% 80% 60% 40% 20% 0% Weeks before product closing Months with no trade have been excluded.
Monthly traded volume [MW] Monthly trade volume of system price 8000 7000 6000 5000 4000 3000 2000 1000 0 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Trading month Delivery year - 2006 Delivery year - 2007 Delivery year - 2008 Delivery year - 2009 Delivery year - 2010 Delivery year - 2011 Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 Delivery year - 2015 Delivery year - 2016 Delivery year - 2017 Delivery year - 2018 Delivery year - 2019 Delivery year - 2020 Delivery year - 2021 Delivery year - 2022 Delivery year - 2023 Delivery year - 2024 Delivery year - 2025
Traded volume [MW] Trade volumes in November 2015 3500 3000 2500 2000 1500 1000 500 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Traded volume [MW] Total traded volumes 60000 50000 40000 30000 20000 10000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Traded volume Open intrest To compared with: Average consumption in Nord pool area (2014) = 45,000 MW
ANALYTICAL
Closing/spot price [EUR/MWh] Forward prices 90 Delivery year - 2006 Delivery year - 2007 80 70 60 50 40 30 20 10 Delivery year - 2008 Delivery year - 2009 Delivery year - 2010 Delivery year - 2011 Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 Delivery year - 2015 Delivery year - 2016 Delivery year - 2017 Delivery year - 2018 Delivery year - 2019 Delivery year - 2020 Delivery year - 2021 0 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Trading month Delivery year - 2022 Delivery year - 2023 Delivery year - 2024 Delivery year - 2025 Monthly values
Closing/spot price [EUR2015/MWh] Real (2015) forward prices 90 80 70 60 50 Delivery year - 2006 Delivery year - 2007 Delivery year - 2008 Delivery year - 2009 Delivery year - 2010 Delivery year - 2011 Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 40 30 20 10 0 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Trading month Delivery year - 2015 Delivery year - 2016 Delivery year - 2017 Delivery year - 2018 Delivery year - 2019 Delivery year - 2020 Delivery year - 2021 Delivery year - 2022 Delivery year - 2023 Delivery year - 2024 Delivery year - 2025 Deflator: Energistyrelsen Samfundsøkonomiske forudsætninger (2014)
Closing/spot price [EUR/MWh] Real (2015) forward prices compared to spot price 90 80 70 60 50 40 30 20 10 0 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Trading month Delivery year - 2006 Delivery year - 2007 Delivery year - 2008 Delivery year - 2009 Delivery year - 2010 Delivery year - 2011 Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 Delivery year - 2015 Delivery year - 2016 Delivery year - 2017 Delivery year - 2018 Delivery year - 2019 Delivery year - 2020 Delivery year - 2021 Delivery year - 2022 Delivery year - 2023 Delivery year - 2024 Delivery year - 2025 Spot price* Rolling average spot price* * Spot and rolling average of spot price are nominal prices Deflator: Energistyrelsen Samfundsøkonomiske forudsætninger (2014)
Closing/spot price [EUR/MWh] Reversed reservoir value [%] Real (2015) forward prices compared to spot price and hydro reservoirs 90 100% Delivery year - 2006 Delivery year - 2007 80 90% Delivery year - 2008 Delivery year - 2009 70 60 50 40 30 20 80% 70% 60% 50% 40% 30% 20% Delivery year - 2010 Delivery year - 2011 Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 Delivery year - 2015 Delivery year - 2016 Delivery year - 2017 Delivery year - 2018 Delivery year - 2019 Delivery year - 2020 Delivery year - 2021 Delivery year - 2022 10 10% Delivery year - 2023 Delivery year - 2024 0 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 0% Delivery year - 2025 Spot price* 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Rolling average spot price* Trading month Reversed hydro * Spot and rolling average of spot price are nominal prices Deflator: Energistyrelsen Samfundsøkonomiske forudsætninger (2014)
Reversed hydro reservoir 0% Minimum and maximum values are for the period 1995-2015. Values are for Norway, Sweden and Finland 100%
Closing price [EUR/MWh] Correlation spot price 80,00 70,00 60,00 50,00 40,00 30,00 20,00 y = 0,3277x + 27,494 R² = 0,3029 10,00 0,00 0,00 20,00 40,00 60,00 80,00 100,00 120,00 140,00 160,00 Spot price [EUR/MWh]
Closing price [EUR/MWh] Correlation 12 months rolling average spot price 80,00 70,00 60,00 50,00 40,00 30,00 20,00 y = 0,4665x + 22,552 R² = 0,2251 10,00 0,00 0,00 10,00 20,00 30,00 40,00 50,00 60,00 Average rolling spot price [EUR/MWh]
Closing price [EUR/MWh] Correlation reversed hydro fill 70,00 60,00 50,00 40,00 30,00 20,00 y = 0,7131x + 39,383 R² = 0,0004 10,00 0,00 0,00 0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80 0,90 1,00 Reversed hydro filling
Closing price [EUR/MWh] Correlation Coal and CO2 price 60,00 50,00 40,00 30,00 y = 0,4787x + 20,343 R² = 0,3715 20,00 10,00 0,00 0,00 10,00 20,00 30,00 40,00 50,00 60,00 70,00 Coal + CO 2 price per MWh [EUR/MWh]
CONCLUSION
Conclusion Forwards for 2016-2025 are nearly equal (in real prices) Forwards tend to be above realised prices (20-50% 3 to 5 years before) Insurance premium for consumers Note: Current (Dec. 2015) forward prices are likely to be below realised values (when looking more than 1-2 years ahead) Liquidity is very low for forward more than 2 years ahead Even a minor extra trade is expected to move the price Forward price is clearly linked to the daily spot price The volumes traded for CfD s are VERY small Many days and months with no trading Very little information about the expected price in e.g. 2020 or 2025 can be derived from the forward prices
Dependencies Hydro price Coal price Spot price Forward price Carbon price
Traded volume [MW] Far future bids Market spread More years ahead Higher uncertainty Smaller market depth Bigger market spread Higher impact per bid 60000 50000 40000 30000 20000 10000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
EXTRA
SYSTEM PRICE
01-01-2001 17-03-2001 31-05-2001 14-08-2001 28-10-2001 11-01-2002 27-03-2002 10-06-2002 24-08-2002 07-11-2002 21-01-2003 06-04-2003 20-06-2003 03-09-2003 17-11-2003 31-01-2004 15-04-2004 29-06-2004 12-09-2004 26-11-2004 09-02-2005 25-04-2005 09-07-2005 22-09-2005 06-12-2005 19-02-2006 05-05-2006 19-07-2006 02-10-2006 16-12-2006 01-03-2007 15-05-2007 29-07-2007 12-10-2007 26-12-2007 10-03-2008 24-05-2008 07-08-2008 21-10-2008 04-01-2009 20-03-2009 03-06-2009 17-08-2009 31-10-2009 14-01-2010 30-03-2010 13-06-2010 27-08-2010 10-11-2010 24-01-2011 09-04-2011 23-06-2011 06-09-2011 20-11-2011 03-02-2012 18-04-2012 02-07-2012 15-09-2012 29-11-2012 12-02-2013 28-04-2013 12-07-2013 25-09-2013 09-12-2013 22-02-2014 08-05-2014 22-07-2014 05-10-2014 19-12-2014 04-03-2015 18-05-2015 01-08-2015 15-10-2015 Spot price [EUR/MWh] Daily system prices 350 300 250 200 150 100 50 0 Daily average Daily maximum Daily minimum
CFD PRICE DIFFERENCE: AREA PRICE SYSTEM PRICE
Annual price difference with system price [EUR/MWh] Annual price difference price and forwards 15,00 10,00 5,00 0,00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018-5,00 DK_W price DK_E price Forward DK_W price (of 1st week of December 2015) Forward DK_E price (of 1st week of December 2015) -10,00
Closing price [EUR/MWh] Monthly closing price difference DK_W - SYS 15 10 5 0-5 1 3 5 7 9 11 1 3 6 8 10 12 2 4 6 8 10 12 2 4 6 8 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Delivery year - 2007 Delivery year - 2008 Delivery year - 2009 Delivery year - 2010 Delivery year - 2011 Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 Delivery year - 2015 Delivery year - 2016 Delivery year - 2017 Delivery year - 2018-10 Trading month Months with no trade have been excluded.
Error [EUR/MWh] Weekly error in price difference DK_W - SYS 25 20 15 10 5 0-5 Delivery year - 2007 Delivery year - 2008 Delivery year - 2009 Delivery year - 2010 Delivery year - 2011 Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 Delivery year - 2015-10 -15 153 148 137 132 129 124 121 117 114 110 107 102 99 96 93 88 84 81 76 72 69 66 63 60 57 54 51 48 45 42 39 36 33 30 27 24 21 18 15 12 9 6 3 Weeks before product closing Months with no trade have been excluded.
156 153 150 147 142 137 134 132 130 128 125 123 121 119 116 114 111 109 107 104 102 100 98 96 94 92 88 85 83 81 78 75 73 71 69 67 65 63 61 59 57 55 53 51 49 47 45 43 41 39 37 35 33 31 29 27 25 23 21 19 17 15 13 11 9 7 5 3 1 Average of absolute error (2007-2015) [%] Average of absolute error in price difference 16 14 12 10 8 6 4 2 0 Weeks before product closing DK_W DK_E Months with no trade have been excluded.
Monthly traded volume [MW] Monthly trade volume of price difference DK_W - SYS 250 200 Delivery year - 2007 150 100 50 Delivery year - 2008 Delivery year - 2009 Delivery year - 2010 Delivery year - 2011 Delivery year - 2012 Delivery year - 2013 Delivery year - 2014 Delivery year - 2015 Delivery year - 2016 Delivery year - 2017 Delivery year - 2018 0 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Trading Month
Traded volume [MW] Traded volumes in November 2015 30 25 20 15 10 5 0 2016 2017 2018 DK_W DK_E
Traded volume [MW] Total traded volumes 400 350 300 250 200 150 100 50 0 2016 2017 2018
Closing/spot price price [EUR/MWh] Reversed reservoir value [%] Comparison with spot price and hydro fill 2007 80 100% 70 60 50 90% 80% 70% 60% 40 50% 30 20 10 40% 30% 20% 10% 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 0% 2005 2006 Trading month Annual/realized price Closing price Spot price Rolling average spot price Reversed reservoir value Reversed reservoir value = 1 (fill fill_min)/(fill_max fill_min) (min and max computed for each month)
Closing/spot price price Reversed reservoir value [%] Comparison with spot price and hydro fill 2014 90 100% 80 90% 70 80% 60 70% 60% 50 50% 40 40% 30 30% 20 20% 10 10% 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 0% 2009 2010 2011 2012 2013 Trading month Annual/realized price Closing price Spot price Rolling average spot price Reversed reservoir value Reversed reservoir value = 1 (fill fill_min)/(fill_max fill_min) (min and max computed for each month)