Improving problematic practices
Just Trusting an Outlook
Pattern
- Observed often in growing asset development companies
- Purchase an external consultant’s outlook and get a financial arrangement with that outlook
- Tend to think hedging is additional cost item
- Try to find an ideal PPA or long term contract if any
- No portfolio management concept (project by project concept)
- Top management mainly incentivized with successful asset acquisition and development
- Actions without prudent analysis
Problem
- Outlook vs Dynamic market reality
- No understanding about market risk and portfolio management
- Attributing business failure as wrong outlook or forecast
- Project justification vs Profit protection
Expecting a Perfect Hedge
Pattern
- Observed often in conservative utility companies
- Try to analyze all kinds of risks at once (up to operation details from the far beginning)
- Whichever way of analysis, at the end, they are trying to find a perfect hedge (highly customized/structured product) to reduce the risk exposure at once
- Excessive analysis delays actions
- Try to find a perfect hedge at once and take out risk stress with one shot
Problem
- Might strike a very expensive hedge deal
- Failure of finding a counter party to provide a perfect hedge
- Simulation with all combined factors lose intuition
- If analysis misses something, then it leads to a wrong action
- Placed hedge cannot be adjusted easily later because of bad liquidity of highly structured product
Leading to best practice
Important Aspects of Best Practice
- Decompose risks (by time horizon and character) and actively manage them
- Actively monitoring intuitive measures (especially Position) and be able to adjust Position easily
- Utilize standard products for hedging (Liquidity and Transaction cost consideration)
- Action oriented metrics (not just for analysis for analysis)
Our Expertise and Experience
Risk Metrics and ETRM
- Developed a lean ETRM called Portfolio Management Platform (Curve Server, Asset/Trade manager, Pricing & Valuation, Risk analysis)
- Full Monte Carlo revaluation Risk Metrics (VaR, CFaR, GMaR) for the global portfolio of energy companies
- Internally developed risk analytics module integrated in our Portfolio Management Platform or coordinated with existing ETRM
Trading and Analytics
- Develop various analytics tools for front office (Daily model/market fundamental report, Power Market model automation, market fundamental dashboard)
- Power Market Model integration
- Congestion trading analytics (FTR, Power basis trading)
- Develop option pricing modules
- Develop trade submission/verification tools for US ISO and JEPX
- Hedging strategy, contract structuring and valuation
- Develop Renewable/Load/Price forecast model by AI machines
Market Fundamental & Asset Strategy
- Develop market fundamental database and automated scraping platform for entire US & Japan power market
- Price forecast and scenario analysis (US, Japan and Korea)
- Calibrate and automate various power market models
- Power Market fundamental research
- Asset development & acquisition strategy
- Comparative analysis with US/Japan/Korea/Europe power market
Renewables and Energy Storage
- Hedge strategy for renewable energy portfolio
- Commercial contract and PPA development for Battery energy storage
- Bio fuel Trading Management solution development (Bio mass in Japan)
- Regulatory strategy for expanding market