All PostsMonthly SessionsRenewables & Battery Storage Solutions

Managing Risk around Renewable Energy Assets

todayApril 11, 2024 506 1

Background

PANEL DISCUSSION

  • How is the energy transition changing risk management requirements?
  • Complexities of Power Purchase Agreements (PPAs)
  • Tracking positions in a diverse renewables portfolio
  • Tactics for hedging renewables
  • Managing risk around battery storage

SPEAKERS:

Erick Marquardt de Araujo, Head of Renewable Portfolio Management at ENGIE
Erman Özkirim, Origination Manager at GEN-I, d.o.o.
Glenn Labhart, Labhart Risk Advisors
Mariana Fulan, Head Of Renewable Energy Origination at Serena

Transcript

HOWARD WALPER, CEO AMERICAS, COMMODITIES PEOPLE

Good morning, everybody. Welcome to our focus month series on renewables and storage optimization. My name is Howard Walper. I'm the CEO of the Americas for Commodities People. We have three great webinars today, one after another. We're going to be starting up with this panel managing risk around renewable energy assets. We're going to move into, after this, tech driven renewable portfolio management. And we're going to end our series with a panel discussion on optimizing trading around battery storage. Before we get started, a few quick housekeeping points. First of all, I'd like to thank our sponsors who are from the wall behind us. Without these folks, we would not be able to host programs like this. So thank you very much and we encourage you to look up these sponsors and learn more about their services. Second, if you'd like to ask a question during this, we would love to have you all out there participating with people participating from all over the world. So we've got a very diverse audience this morning. If you are interested in asking a question, submit it in the q and a box at the bottom of your screen. Not the chat box, the q and a box. And our panelists will get to it if as many of these as possible in the time permitting. Finally, it's a pleasure to turn the floor over to our moderator this morning, longtime industry expert, good friend, Glenn Labhart. Glenn, I'd love to turn the floor over to you to take over this discussion.

GLENN LABHART, LABHART RISK ADVISORS

Perfect. Thank you, Howard. Welcome to everybody this morning. I think you're going to enjoy this. What we'll tee up here is the items are pretty much going to be the effects of managing risk around renewable assets as we're all coming globally from a perspective of utilizing fossil fuels. We've now gone green. The world is very, very focused on climate change. It's how some of these climate change assets or renewable energy assets are going to change. So our panel today is very diverse. We have two people from the US right here and someone actually oversees. I know we've got a diverse audience. So I think the thing that we'll try and do for you is give you a perspective of how this sort of element of renewable risk looks in different global areas and kind of take it that way as far as questions. So as I'm going to start from the panels as I see them here, and ask them, each one to introduce themselves, absent Mariana, I'm going to ask you to go first. I always come from Texas and his ladies first. So if you'll introduce yourself and then I'll then call on one of the other speakers to introduce themselves. Mariana.

MARIANA FULAN, HEAD OF RENEWABLE ENERGY ORIGINATION AT SERENA

Hello, everyone. It's a pleasure to meet you all. I've been working for Serena for almost five years now. My current position is head of origination. Before coming to the US, I was responsible for the Brazilian markets where I'm from and where Serena is from as well. And then I moved to the US when I got the invitation to oversee the aircraft market here in Texas, as Glenn mentioned. And it's been eleven months that I am here in the US. It's very different from the Brazilian market. So I can say that it's an ongoing learning process for me. But I'm very happy to have this new knowledge and to share some of my thoughts with you guys. So Serena is 100% energy developer and we own assets in Brazil and in Texas. Thank you very much.

GLENN LABHART, LABHART RISK ADVISORS

Very good. So we'll have a really interesting dichotomy here of a Brazilian person here now in Texas, giving us a view kind of from a different region. Erman, I'll let you introduce yourself now, if you would, sir.

ERMAN ÖZKIRIM, ORIGINATION MANAGER AT GEN-I, D.O.O.

Thank you. Thank you, Glenn. I'm an engineer in electricity, working for the power, working in the power markets for 15 years now. And in the last ten years, I've been working, I've been serving Geni. Geni is a trading and utility company based in the small green country of Slovenia in Europe. And we've been trading. We are trading in 22 countries in continental Europe here. I'm taking the role of the regional managers, similar to internal consultants on our commercial positions in certain power markets. And I will try to provide you with the European take on the or how is it going on the Europe side or the world about the energy transition? And good morning to you all and hopefully good evening to me and fellow Europeans here.

GLENN LABHART, LABHART RISK ADVISORS

Thank you, Eric. I'll let you go. I'll follow up with you. You'll have an introduction, please.

ERICK MARQUARDT DE ARAUJO, HEAD OF RENEWABLE PORTFOLIO MANAGEMENT AT ENGIE

Yeah. All right. Yeah. Good morning and good evening for everybody. It is a very diverse group. I'm very happy to be part of the panel here. So I am with Engie. Engie is a French group that operates almost in every single link of the value chain in energy. I am within a unit called GM's, which stands for global energy management and sales is the trading arm of the group. We also do all the assets back trading and the assets management in terms of the market decisions for the assets that are owned and operated by Engie in the US as well. So my team here is called. Actually, we started a new team called Algo Power Training. We have had this team since December and we have been exactly trying to take advantage of this overlap between the opportunity brought by renewables, but also connecting with data techniques and being able to develop strategies, trading strategies using these forecasts and the volatility that renewable production has brought to some of these grids. So it's a new activity. I'm very excited to be having this new team. But yeah, in the end it's really a work similar to what the renewable assets face. Forecasting, wind forecasting, solar forecasting prices is what you have been doing.

GLENN LABHART, LABHART RISK ADVISORS

Okay, one thing I'll mention if you want to comment on this, please do. When you look at for the audience here, you've got somebody who's in a regional market over in Greece, pretty much in the european theater, someone who's a developer in Texas for renewables with a brazilian focus and then Ongi, which you're a big french company, but you also have a large dynamic trading. So you might see from the audience here, if you want to send questions in, one is more very trading oriented and optimization versus someone who's looking at it from the development side. So that might be easier for us to kind of use and explain. Anjay is a very big trade firm, very, very big trade firm, and will sometimes carry a little more risk than other companies. But let's just kind of go into the question and I'm going to keep the order as we've had it for the questions. Mariana, I want you to kind of just give me a couple of bullet comments, if you will, about energy transition. How is this changing? You know, we've been on fossil fuels, you've come from Brazil, you're now in the market here in Texas. How has this really changed with regards to the transition requirements for risk management? What are you having to look at that's different? What can you use? What can you not use? Can you give me a little color on that?

MARIANA FULAN, HEAD OF RENEWABLE ENERGY ORIGINATION AT SERENA

Yes. So I come from a company that has always been a renewable energy company. So the renewable energy world, it's easier to speak when you are in Brazil full of natural resources for renewables, especially wind and solar. And compared to the US market, after some incentives such as RA, we have started to see a lot of investments in renewables as well. And these renewables are great, and are probably in the goal of every company, every consumer nowadays. So it's almost impossible to find a company that is willing to buy something that it's not renewable. But we can, we can of course talk about some issues related to renewables that will come with the high penetration of renewables in any markets, Brazil, Europe, taking airmen example or even in aircraft. So something that we will see is as renewables are very volatile, the renewable energy market, the renewable energy assets normally would come within a combination. So we will start to see more combined hybrid parts, considering wind assets and solar assets, combining and taking the subject while we're here today, also storage. Using that combination of the three assets, we will see something more stable. What we are used to with thermal production energy or something like that. So I think the requirements from the consumer haven't really changed. So the consumer is going to expect something more flat and stable to consume. But renewables are not exactly that. So the market had to reinvent the way to produce energy. And these new markets, in my opinion, would be exactly associating green resources such as all the portfolios that I mentioned. So in Brazil we have hydro as well, but here we will have to use batteries in the US.

GLENN LABHART, LABHART RISK ADVISORS

Okay, Ermin, let's take it to your side of the world. How does it look over there with you with regards to, you know, what's different? What are we changing over there that's different? Or is it just a new market you're having to just identify?

ERMAN ÖZKIRIM, ORIGINATION MANAGER AT GEN-I, D.O.O.

So Mariana made a good introduction. It's more or less the same. People are like, let's say there is nobody who's not talking about the energy transition at this moment. And the goals are pretty ambitious, I would say. I can give you some numbers just to compare what is going on. So in Europe in general, last year there was 200 gigawatts of renewable sources added to the energy transmission system. This is only wind and solar. And the growth, practically the growth is exponential. And in the upcoming five years, we are expecting 400 gigawatts of more renewables to be included in the transmission system. Of course this is going to be a challenge in many aspects. Actually this goal to add 400 gigawatts is surpassing the US goal, US, India or Latin America in total, only behind China, which is okay. Like has a goal of two terawatt hours to be added in these five years. And at the end the result will be like 55% of the demand would be supplied from renewable energy if everything goes alright with these challenges. But we have. So on the other hand, what are the problems? One is the increased cost of money throughout Europe and also in the US there are also credit problems. And there is also technically how to accommodate such, such injection of renewable power, which is volatile to different weather conditions, to our transmission systems, which were practically designed to accommodate conventional power generation systems like fossil fuels, and they were more reliable. So this is one of the main topics. And on the other hand, we have, Europe is also considering that. Okay, now we have this goal. How are we going to also make sure that non-European countries will also adapt to it and will also share the same goals? So they also introduced some, let's say, some conditions for industry to be able to sell products in Europe. So they have to be also provided with, they have to be netted with the CO2 emissions of them. So this is more or less the condition now. And practically all the investments are going in this direction. And we are currently in the middle of this. And then. Yeah, but that's about it practically on this side.

GLENN LABHART, LABHART RISK ADVISORS

Let's do this real quick as a matter of point, then. I want to pass this over to Eric for the sake of time. But I think it's good to give the audience this, that if you're on the call and you're looking at, you can see here where there's a concentration of a mature market that's trading. Depends on who you talk to about that here in Ercot, over where you are in the development, and you've liked, I think you quoted 4000 gigawatts or some figure there, but you're going to be trading it and you're trying to figure out, do you have an established pricing market of a benchmark? Is it such that it's a one to one? Is it more of a correlation or a dirty hedge, as sometimes people call it? Because I want you to just, if you would just take a quick moment and give us that from that perspective in the market you're in. And then, Eric, when I hand it to you, if you'll pick it up on this side, is to talk a little bit about the difference between the two. I think that would be helpful for the audience. If you'll just finalize that one point on your response, Erman, I'd appreciate that.

ERMAN ÖZKIRIM, ORIGINATION MANAGER AT GEN-I, D.O.O.

Thank you. And then I will comment on this one. So there are 19 exchanges throughout Europe, and this is causing kind of a basic problem for all inserted energy. And practically, these 19 exchanges and 38 possible different nodes of pricing. So this is practically making it impossible to have a, let's say, to have a good pricing for the renewable energy, and then generally it is not consumed on the place that it is generated. So this is one of the problems. There are other problems. Such as? Such as the volumes are not matching with the consumption and generation. So this is also another, this is.

GLENN LABHART, LABHART RISK ADVISORS

Also, why don't we do this then? Let's take that as a platform and we come back to one of the other areas on hedging. We can be more specific. Eric, could you go ahead and kind of flow into this with your comments with regards to energy transition, changing requirements, how you're addressing that, what you're doing, I'll let you take it from here.

ERICK MARQUARDT DE ARAUJO, HEAD OF RENEWABLE PORTFOLIO MANAGEMENT AT ENGIE

Yeah, sorry. It's a pleasure. So maybe just as a comparison, in the US, as you all know, we have the market divided by regions and then every region in general, the price of nodal. So the challenge that my colleague just mentioned about having no double price is definitely a reality in the United States as well. And here I would say in general, the energy transition brings two kinds of challenges when we have renewables. The first is renewables do not always produce power when you need it. And the second is renewables always produce power where we need it. And with these two characteristics that where I'd say the main risks of managing renewables, they stem from because you're not producing exactly where you need, you have to use transmission lines, and that's where you call bases in the jargon of the sector, but that's the difference of price between where you produce and where you are consuming energy. So this is a big risk. And the different, and the first, kind of like Ms mentioned, I mentioned that you're not producing when you need it. That's where it stems, the intimacy it stems from. And for that we sometimes have the same day price, the negative level and then in a given hour the price is super strong, because you're just not producing energy when you need it. And so in terms of strategies or, you know, the techniques to manage those, I would say in general, you're gonna have to use some sort of, it comes down to trading. So I'm sorry to bring the discussion back to my, my field of expertise, but you need to use products as congestion revenue rights, or use for the transmission problem, or buying and selling power, but having energy hedges in place to cushion your intemperance. So at the end of the day, it's a discussion of which kind of transactions you can exercise to at least get some optionality on your portfolio to hedge those.

GLENN LABHART, LABHART RISK ADVISORS

Okay. So it's a matter of being able to construct the proper agreements to work within the confines of the respective market that you have, be it that you're trading or you're structuring the agreement for more of a term type circumstances. Yeah.

ERICK MARQUARDT DE ARAUJO, HEAD OF RENEWABLE PORTFOLIO MANAGEMENT AT ENGIE

And you raise a great point. I think a lot of optionality came during the discussions of the PPA. So the markets always sometimes have liquidity for all the possible options. But since the discussion of the PA is bilateral, you can't include some optionality in the PPA itself that you couldn't buy in the market, or at least not in an easy way or with observable screen price. So I think you got exactly the crux of the discussion. The PPA is a great moment to add some optionality for both sides to hedge those risks.

GLENN LABHART, LABHART RISK ADVISORS

Right? And that's a good segue. Why don't you take it from there, Mariana, on kind of ppas as you're seeing them from your origination. I think as Eric's identified, you've got certain elements you can consider and maybe hedge off, but you're still going to be left with a little bit of risk here and what a PPA is doing to you and how you have to look at it from your end.

MARIANA FULAN, HEAD OF RENEWABLE ENERGY ORIGINATION AT SERENA

So first of all, I think PPA is already itself ahead, because on my side, if you are not willing to stay and serve the market price, you will sell PPA a long term deal, in the jargon of the market, to protect yourself from the volatile of the prices in renewable, in my case, because it's a renewable energy PPA. So I reinforce what Eric has already said. On the seller side, normally we sell PPA and we will look for trading strategies exactly what Eric mentioned, such as auctions like the CRR that Eric mentioned, to protect ourselves from where we are producing and where the consumer is buying the energy, which in air quotes it's normally totally different. There is a lot of risk in between those two regions, so that the seller would look for a PPA with the buyer to protect himself, to get the project, the asset, financially speaking, viable. And on the other hand, the trading dot will protect us from the risk of selling something that it's not exactly where we are producing energy for. Taking the Eric example and using the contract to put our needs and also the buyer needs. So the buyer would look for something that he could consume energy with the lowest risk possible, and we would sell exactly what the buyer is asking, but also use some hedging trading strategies around the markets to protect ourselves from trading risks or price risk. Very same.

GLENN LABHART, LABHART RISK ADVISORS

It strikes me the way you've explained that then that a PPA, from your perspective, is identifying a long term arrangement of contract with the counterparty associated with your asset, with building a band, if you will, to maintain profitability with spikes above or below that band that are going to occur with the market and giving you the capability of grabbing that extrinsic value when you can. That's pretty much it?

MARIANA FULAN, HEAD OF RENEWABLE ENERGY ORIGINATION AT SERENA

Yes, pretty much each. So consumers that have a lot of consumption, they will have more flexibility, for sure. Smaller ones would search for something like no risk at all. This is important to mention as well.

GLENN LABHART, LABHART RISK ADVISORS

Sure, sure. Well, flipping it over to you, Armin here, we've got this kind of matured market and you're in an emerging market over there. Kind of slide PPA into your model and give us some, some background on there as to how this is working and how the, how it's complex and how you're having to make some arrangements over there.

ERMAN ÖZKIRIM, ORIGINATION MANAGER AT GEN-I, D.O.O.

It actually changes the market and it changes the way that the trading companies or any energy company that operates. I would say like 510 years ago, our company was more traders oriented and then they were the powerhouse of the company. And mostly like they were watching all the markets and flow of the energy, similar to the CRR that is used in us. But during this energy transition, it is more, much more data driven and we have much more analysts, much more data engineers. And this has to be managed in a different way than it was being done. So there is a quite different aspect to the management of the PPA portfolio. In that sense, the risks are either in the very long term or in the very short term. We don't know in the short term, the weather conditions, wind and solar, practically. We even had a very, very real life example two days ago on a Saturday. Very low demand throughout Europe, and quite good wind throughout Europe as well. And then the price went in Switzerland -65 and throughout all Europe, with one or two exceptions, every price was negative. So practically at that time, crrs will not save you. So there is no, there is nowhere to flow this energy to. And what you could do, Eric was also mentioning some short term optionalities that you have either within your PPA profile or other than your PPA profiles, the structured deals that you have to originate and sometimes manage your demand on a real time basis, manage your power plants also PPA portfolio on a real time basis. So what you could do, it's better not to generate electricity at these prices. So you just disconnect them from the system if you can. So this is one of the ways to handle these kinds of spikes, spikes down.

GLENN LABHART, LABHART RISK ADVISORS

So it strikes me then the way you kind of said that, and I'll summarize this, is that lack of emerging in an emerging market. You don't maybe have a point of liquidity. You've got to manage your operational risk from CRR type situations or just the generation. There becomes a lot of risk management in and around a PPA, more than just your market credit, operational and some of the other risks. Let me flip over to you, Eric, and then I'd like for you to comment on this too. Mariana, we've had this discussion before. Let's talk about the market you're working in, Eric, where you know what CRR's are. Give me a little of a definition, explanation, and then, Mariana, I know we spoke about it. Give me some color on your end into why and how you use something like this, as opposed to just buying and selling a hedge on a futures market. Eric, could you take that for me?

ERICK MARQUARDT DE ARAUJO, HEAD OF RENEWABLE PORTFOLIO MANAGEMENT AT ENGIE

Yeah, of course. Yeah. So essentially, the CRR system, congestion revenue rights, that's the name we use here in aircraft. Every market has a similar hedge. The name sometimes differ, but it's essentially the same concept, right? You are making a swap of a fixed price for the congestion of a given path over. So a swap of the fixed price over floating price being a summary way of saying this is you're locking the cost of congestion for you. So you're paying to the market. Generally, that's an auction. You're paying to the market a given price, let's say $5, to lock the congestion costs for you. The challenge is, usually the problem for renewables using these kinds of instruments is, of course, we don't exactly know what the production is going to be. So you're buying ahead that has a fixed volume, but your production is going to be anything but fix, right? So you're going to have a mismatch of volume. And the other problems here are, have, well, no problem. But the way they designed it, they were against the congestion they had. And in general, especially in aircraft, the PPA is settled in real time. So you have a difference between the day ahead congestion, the real time congestion, they're going to have to head using a different instrument called PTP. But I would say maybe just my last point on this is usually these hedges, they have a short span, right? They look up, you have auctions up to three years ahead. As Mariana mentioned, the ppas in general are 1620 years old. So a big chunk of the PPA will be on the hedge. And if the congestion gets systemic or it becomes a problem every day there, guess what? The next CRR auctions are going to price the congestion. So you can't buy the hedge at a cheap price anymore. So that's where you started discussion about PPA optionality. That's where it's so important, the beginning, you know, both sides, right. The PPA is a bilateral agreement, so both sides discuss what you're doing when certain cases arise. So we have seen some ppas with clauses like blowouts, like if the congestion gets to a point, which is unbearable, players decide how to recompose the economics of the project. So there are some clauses to adjust and cushion both sides. So it is important because it's hard to tell what the grid is going to look like 15 years from now. Right.

GLENN LABHART, LABHART RISK ADVISORS

So in essence, would you characterize it as managing long term optionality versus short term when you use a CRR?

ERICK MARQUARDT DE ARAUJO, HEAD OF RENEWABLE PORTFOLIO MANAGEMENT AT ENGIE

Yeah. The best optionality the renewal players have is to get up good agreement with their off takers to have enough clauses that can trigger when conditions that are not foreseen arise. Because the market, as we discussed, a big challenge we have for these instruments is liquidity. There is an auction, which happens every month, sometimes twice a month, but it's going to allow you to go up to three years ahead. So it's still going to have to rely on your relationship with daycare and the flexibility you're able to build your PPA to hedge the remaining 18 or 17 years. I don't know.

GLENN LABHART, LABHART RISK ADVISORS

So to inject that a different way, I'll say it again, long term optionality to short term optionality with a very high degree of operational risk, components built in to manage all of this. So it implies to me, the way you describe this, and I'm going to hand this to Mariana, that when you're looking at your longer term portfolio, you've always are managing economics of knowing what you have, what the market's giving you. You can't just look at it as one short term, one long term. You got to look at the whole portfolio and always be constantly ready to do the things that it takes to get the deals done, but at the same time, manage your intrinsic value of your actual position of what you're doing. Mariana, why don't you take that? I know that's a bit was a big point for you as we discussed about CRR and some of the hedging. Why don't you grab that and start us in on how maybe look at for look, going towards the tracking of positions or just tactics for renewables as that. What are. How do you, how do you use something like that? How do you do it?

MARIANA FULAN, HEAD OF RENEWABLE ENERGY ORIGINATION AT SERENA

So I won't try to explain better than Eric, because I want success, but taking the point. I think using Habs and selling ppas already put some comments on that. We are going to end up at the same issue, which is where we're styling renewables is probably not where the load is. So there are two ways to solve this problem. And it's not exactly a financial hedge in this case that I'm going to comment, but it's a hedge, but it's a more physical hedge. So one of the strategies could also bring the load closer to the asset. So we are going to start to see a lot of, and I will put two big examples because they are taking the leads of all collocation roads, which are big techs that are stalling data centers, and a lot of types of data centers, including the West Texas crypto mining, because we are far away from big centers. So maybe sometimes crypto is the only thing that would make sense in a data center for big techs or artificial intelligence. Something that we are going to see in the next couple of years a lot, and also in more long shots, something that is being deeply discussed in the US and in Europe as well. It's green hydrogen. So one of the hedges that renewables are discussing right now, it's how to bring loads closer to the assets. And this solves the issue because we're going to solve exactly the second problem that Eric mentioned. Where the law is and where we are producing energy would be at the same place. So at the end, this is a hatch, it's more like a physical ratch, not exactly a virtual, a financial hat. I'm sorry. Like Eric mentioned. So just to give some color and put more solutions on this discussion as well.

GLENN LABHART, LABHART RISK ADVISORS

Okay, very good. You were getting some questions rolling through. So what I'm going to do is I'm going to roll these through to the panel and try to stay on our schedule. But one of the one things that has struck me, and I think this is a very, very good way to kind of put a segue into the market. And the question coming in is, with very low to negative power during peak hour due to a solar build out, you know, you're looking at solar coming in at low peaking power. How do you see a fossil fuel plant remaining profitable since there's no other source of income from renewable subsidy? So it's kind of like you're fuel switching here in a little bit. When you think about it, if I understand this question well as to looking at solar and not being able to have negative peaking power, but you've got a baseload generation that's running fine. How's this going to work into the future? I mean, you, I know that a lot of people in certain parts of the United States and globally are turning off fossil fuels and going straight to renewables. Eric, you want to start with that one? You want to take that one?

ERICK MARQUARDT DE ARAUJO, HEAD OF RENEWABLE PORTFOLIO MANAGEMENT AT ENGIE

Yeah, I have to.

GLENN LABHART, LABHART RISK ADVISORS

Yeah.

ERICK MARQUARDT DE ARAUJO, HEAD OF RENEWABLE PORTFOLIO MANAGEMENT AT ENGIE

I mean, one maybe adjacent question that I get sometimes is if renewables plus storage would diminish the volatility of these grids, and then you wouldn't have an opportunity to have any trading or even like turbines or pickers that would be able to capture this volatility. And I think I'm going in a direction because I think that kind of answers some of this question as well. Increasingly, there is always going to be a difference in the value of you producing power in a warm evening aircraft when there is no solar, and low wind against the middle of the day when it's hot. But you have a lot of solar. Some days, like tomorrow, for example, we have a lot of wind as well. So there is an intrinsic difference of value, meaning I don't think a market that has solved the capacity issue, a market that has a lot of reserves, doesn't mean a market will fall to volatility. I think volatility comes from this difference of intrinsic value. And then in terms of phosphor, in fact, aircraft, we're probably going to be reaching 30 gigawatts of solar for the summer. We have 38 gigawatts of wind. I'm talking about nameplates, right? So that's the nameplate figures. So indeed, the middle of the day is getting less and less valuable because you have more and more sources that are able to produce power there. But that doesn't mean, you know, in other moments, other fools are going to be important to provide that capacity. So the way I see this is, I think grids are going to be very attractive for whoever is able to provide a resource that is flexible, be it that of your gas, be it batteries, be it flexible loads, as my colleague just mentioned. So whoever has flexibility is going to be able to still be meaningful and attractive to the grid. So I don't think it's because it's exalted, Will. It's about, I think, flexibility, in my opinion.

GLENN LABHART, LABHART RISK ADVISORS

And I think the key here that you're pointing out is for the audience, because I've seen a lot more questions come in with regards to the lot of people, what they'll call physical risk. And the word that you use, flexibility, it's like saying when you're looking at a holistic risk approach. You got to line up and know what your operational considerations are to be able to take advantage of the lift and income or the management of the intrinsic that you have on the asset. But I'm going to throw this one to ermine, because one that has come out, and I'm going to combine a few questions that I'm seeing come across with regards to optionalities and standard products that are available. What's going to happen? You're looking at a global market here. And I think we can easily say it's different in Brazil, it's different in ERCOT, it's different in PJM, Niso, wherever, Caiso, what Ehrman has got over in his country, you got different markets, and they're all going to behave differently. But when you're looking at available tools, if you will, like what's being brought in here about hedging tools available in the market, what can you do? And how do you address some of this with regards to the products that you have now and what's under development? And I know this is one of the things that Ermin had talked about pre, to our seminar, is what's really critical for liquidity in his market is what kind of products and what kind of risks are available with regard to basis. So could you take and put a little color on that term, from your perspective, please?

ERMAN ÖZKIRIM, ORIGINATION MANAGER AT GEN-I, D.O.O.

Yes, I will take this one. So there are like, we can take this on two levels, like very short term, there are still options. And in the midterm, we can say up to two, three years, we have the standard products, which we are not perfectly hedged within the markets, but we still are able to have a price signal for the future. But also, Eric mentioned beyond this horizon, especially beyond five years, it is more of a regulatory risk. It's more of a legal risk. And then you have to be addressing, not the market for this kind of question that you have, that you, you have to be creative on the flexibility with the partner that you are having on the other side, on how the market, how the, how this business will develop. You will, we are going into this direction in either from the generation side when you, when we are buying, and then on the consumer side, we're selling this renewable energy to them. So this both has to be flexible enough that you would be able to cover the basic risks, because this nodule pricing, maybe in us has been the same for, for a while, but this, we have a surge of installation on the, on the power grid. We don't really, we are not really sure how it's going to look like in 20 years. There are always plans. Of course we're going to be, we have to be flexible on this one. And one more thing that could be the problem here is that the credit risk, because on both sides you have to be taking this more on the credit level because you don't know if this investor on one side, which is producing renewable energy will be still operational as a company and on the other side your consumer will be there in 20 years. So this is also another problem. And we are practically going into that direction in Europe a little bit. We haven't really experienced it yet because now the PPA buyers are, let's say the biggest buyers are like big techs, which are AAA credit ratings. And practically our problem is solved by the financial institutions. But now slowly the providers of renewable energy are getting smaller and as well the buyers are getting smaller. This is another problem that we are going to face in the upcoming year and years.

GLENN LABHART, LABHART RISK ADVISORS

Okay, I'm going to throw this next question to you and then I'm going to go to Erick. Mariana, this is obviously your heritage. Somebody's brought in a question about Brazil and it's thinking about these different markets. How do you see challenges for energy commerce risk with different causes, values and spread ban across large extension grids like the US and Brazil. So I guess the question is you're seeing it from Brazil, you're seeing it from ERCOT. Compare, contrast a little bit or maybe how you see it in other parts of the world or other areas developing.

MARIANA FULAN, HEAD OF RENEWABLE ENERGY ORIGINATION AT SERENA

Just start with thinking about something that Ermon said a while ago. He mentioned that we're looking for hourly matching in many loads to claim that you are green. Some clients are looking for matching the exact power curve, the production curve with the consumption. And in Brazil, for example, this is much easier because Greece is in majority renewable. So even if you connect to the grid, you already consider renewable. We were talking about more than 70% of the grid is already renewable. So if you compare today with hourly matching, it has to be something that it's almost a combination of wind, solar and storage, as I mentioned. And in Brazil it's a whole new different story. In Brazil you can count on the grid and you're already green because the country is already green. So when I move it to the US, I notice the difference. For example, Eric mentioned having some clauses to protect the buyer that he's going to be considered green. And even in the price you can notice a difference. Reg prices in Brazil are trading for around zero point two, zero cents of a dollar and here, depending on the term, of course. But you can find Rex being trading around $5 if it's bundled with the energy and it has a claim for additionality in a green new energy project. So I think these examples give you some color, like Brazil and the US, it's very cheap.

GLENN LABHART, LABHART RISK ADVISORS

So in general, would you say that it's more liquid here or more liquid as a market over there in Brazil versus us?

MARIANA FULAN, HEAD OF RENEWABLE ENERGY ORIGINATION AT SERENA

Yeah, exactly.

GLENN LABHART, LABHART RISK ADVISORS

Okay, Eric, do me a favor. Let's take it this way and go add to the comment as well about kind of give the audience the question that's come in here is the flexibility of battery storage and how it utilizes itself, especially around optionality. Can you speak to that question? And then we can make sure.

HOWARD WALPER, CEO AMERICAS, COMMODITIES PEOPLE

Actually, Glen, before we, before we get into that, unfortunately, we've reached time for this morning and we have another webinar right after this one that they're queued up for. So unfortunately, I think we're going to have to cut the conversation here. But if you all have any things you want to reach out to us, you can reach out to reach out to us. And we're happy to forward any other questions to some of our speakers and moderators. But I'd like to thank Glenn for moderating this conversation. Really appreciate that. Ermine, Eric and Mari, thank you so much for being part of this today. We hope to see a lot of you on our next webinar on technology driven portfolio management. So thank you very much, everybody, and we'll see you again soon.

GLENN LABHART, LABHART RISK ADVISORS

Thank you, everybody. Have a pleasant day.

Written by: Commodities People

Rate it

Previous post

Post comments (0)

Leave a reply

Your email address will not be published. Required fields are marked *