Electricity Economics & Financial Analysis

4 days 10-13 Apr 2017, London UK £3,995.00 + VAT* Download brochure Add to basket

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Overview

A four day intensive, technical hands-on course in which attendees receive comprehensive instruction on the theory and practice of making price forecasts and assessing risk in the electricity generating industry.

Forward pricing and valuation in electricity generation is a four day intensive, technical hands-on course in which attendees receive comprehensive instruction on the theory and practice of making price forecasts and assessing risk in the electricity generating industry.  After discussion of electricity markets around the world, the course moves to programming and model structuring, where attendees follow the lead of the instructor in building various analyzes of forward pricing and valuation issues.  Exercises include analysis of supply and demand, modeling of capacity mix and capacity level optimization; construction of time series analysis for fuel prices loads and hydro generation; and, project finance analysis of merchant plant investments.  As the course progresses, attendees apply risk assessment, option pricing, and valuation techniques in real world cases using an integrated model. In addition to building their own models, participants learn how to use fully developed models that incorporate sophisticated debt structuring, break-even analysis, contract pricing, time series equations and Monte Carlo simulation. 

The course will cover:

  • Learn practical tools to analyse a host of issues in electricity analysis including efficient tools to work with supply and demand data; creating flexible scenario and sensitivity analysis to evaluate power prices and marginal costs; effectively presenting short-term and long-term supply and curves; development of hydro analysis; Monte Carlo simulation and other issues.
  • Create demand and supply models of electricity pricing that incorporates changes in fuel prices, new capacity, demand profiles, maintenance outages to measure hourly marginal cost and total generation cost.
  • Study the structure of market designs around the world and simulate pricing strategies through evaluation of the California crisis and simulation exercises.
  • Understand the relationship between capacity pricing, reliability, loss of load probability and reserve margins through extending the short-run supply and demand analysis and modelling outage cost with different capacity configurations.
  • Model the economic value of different types of renewable resources in alternative markets including storage hydro, run-of-river hydro, wind and solar.
  • Develop efficient ways to quickly compute the levelised electricity cost of different technologies using carrying charge factors and alternative financial models and use levelised cost analysis to develop screening models of optimal resources.
  • Evaluate long-run marginal cost of electricity cost through simulating the value of different generating resources given load curves and simulate the effects of different capital costs, heat rates and fuel prices on the long-run marginal cost.
  • Compute the effects of start-up costs, heat rate curves, and transmission constraints on the value of alternative plants and the price of electricity.

Instructors

We work with a series of expert instructors, please select the course location of interest to review the credentials of who will be delivering the programme.

London
Ed Bodmer
Ed has created innovative forward pricing, productivity measurement and investment valuation software for consulting clients throughout the United States. He has taught energy economics and finance throughout the world, and formulated significant government policy and corporate strategy in the U.S. 

His consulting clients include investment banks, commercial banks, research institutions and government agencies on a wide variety of complex valuation and advisory matters. He has constructed a unique framework for electricity price forecasting and valuation using production cost modelling techniques combined with option price theory and Monte Carlo simulation.

He is also an adjunct professor at leading University where he teaches courses in microeconomics. Along with his practical experience that covers a multitude of major advisory projects, he has taught specialised courses in financial modelling, electricity pricing, option valuation, mergers and acquisitions and contracting to investment banks, commercial banks, industrial corporations and electric utility companies.

He was formerly Vice President at the First National Bank of Chicago where he directed analysis of energy loans and also created financial modelling techniques used in advisory projects. He has used the models in providing expert testimony on subjects ranging from capital structure to investments in multi-billion dollar nuclear plants to complex valuation of new investments.

He received an MBA degree specialising in econometrics (with honours) from the University of Chicago and a BS degree in finance from the University of Illinois (with highest university honours). He has written many articles and is in the process of completing a textbook on valuation of electricity assets.

Venue

London

Central London Hotel Venue

All courses are held at four or five star venues in Central London, Zone 1. We strive to provide you with a training environment of the highest quality, to ensure that the whole learning experience exceeds your expectations.

Your training venue will be confirmed by one of our course administrators approximately 3-4 weeks before the course start date.

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Agenda

Day 1

Electricity Price Characteristics and Short-term Marginal Cost

  • Analysis of electricity price and load data in different markets around the world
    • Comparison of different markets
      • Analysis and summary of load data
      • Working with electricity price data
      • Sources for electricity price data
      • Presentation of electricity price and load data for different time periods

 

  • Computation of plant value per kW in de-regulated markets
    • Value per kW for hydro plant – run of river and storage with constrained energy
    • Value per kW for coal plant through matching coal prices and heat rates with electricity price
    • Value per kW for gas plant through matching gas prices and heat rates with electricity prices
    • Value per kW for renewable energy


  • Short-term marginal cost of electricity
    • Discussion of marginal cost principles
      • Definition of marginal cost
      • Short-run versus long-run cost
      • Reconciliation of short-run marginal cost, long-run marginal cost and market prices
  • California power crisis case study
  • Review of supply and demand drivers
  • Evaluation of market power
  • Bidding game

 

  • Modelling of short-run energy cost
    • Creation of supply curve from cost
    • Creation of supply curve from bids
    • Source of supply curve data
    • Presentation of supply curve
    • Demand curve with price elasticity
    • Intersection of supply and demand
    • Computation and presentation of short-run marginal cost for hour, day, week and multiple years
    • Computation of energy generation cost for different time periods with different capacity expansion options

 

  • Incorporation of renewable energy and hydro in short-run marginal cost
    • Adjustment of demand curve versus supply curve
    • Run of river hydro
    • Solar and time of day
    • Wind and seasonal
    • Storage hydro with load duration curve

 

Day 2

Continued Short-term Marginal Cost and Long-run Marginal Cost

  • Modelling uncertainty in short-term cost marginal cost
    • Uncertainty and volatility in demand – working with demand curves
    • Uncertainty and volatility in fuel cost
    • Uncertainty in plant outages
    • Uncertainty in hydro generation
    • Effects of uncertainty with different reserve margins

 

  • Long-run marginal cost and capacity prices
  • Theory of long-run marginal cost
    • Problem of short-run marginal cost and return on capital
    • Measurement of long-run marginal costs using peaker method
    • Long-run marginal cost and levelised cost of alternative technologies
    • Long-run marginal cost and the cost of interruptible rate
    • Long-run marginal cost and the cost of customer outage

 

  • Discussion of alternative capacity cost frameworks
    • Price spikes and no price caps
    • Administrative capacity uplifts and energy cost pricing
    • Capacity price bidding
    • Pros and cons of alternative models
    • Effects of alternative models on energy prices and addition of new capacity

 

  • Computation of levelised cost for alternative technologies
    • Introduction to capacity cost database
    • Importance of cost of capital in technology cost
    • Regional differences in cost of electricity

 

  • Carrying charge rates - traditional
    • Theory of carrying charge rates
    • Computation of carrying charges using traditional utility approach
    • Calculation of levelised carrying charges with different tax, cost of capital and capital structure assumptions
    • Incorporation of inflation in carrying charges
    • Analysis of levelised cost of electricity with different carrying charges

 

Day 3

Continued Long-term Marginal Cost and Equilibrium Pricing


  • Computation of carrying charges using project finance modelling
    • Basic structure of project finance model
    • Required IRR, debt financing and other assumptions for simple project finance model
    • Building a basic project finance model with flexible construction periods, plant lives, tax depreciation methods and return assumptions
    • Use of project finance model to compute carrying charges
    • Contrast use of project finance model and traditional model in deriving levelised cost of electricity

 

  • Case study of supply and demand – U.K. market crash
    • Sutton bridge discussion
    • Changes in market structure
    • AES Drax capital structure
    • AES Drax financial analysis

 

  • Equilibrium long-run price of electricity
    • Theory and importance of computing long-run cost
    • Relationship of price and cost in long-run
    • Marginal cost with multiple efficient technologies
    • Theory of capital recovery per kW

 

  • Screening analysis
    • Creating model of capital cost, operating cost and capacity factor
    • Computing optimal capacity factor for different fuel/capacity cost trade-offs
    • Optimal capacity factor for different units
    • Capacity factor versus time on the margin

 

  • Integrated marginal cost model for evaluating long-term prices
    • General structure – combining short-run cost models with value per kW
    • Setting-up model with different capital costs, fuel costs and supply mix
    • Computation of energy value per KW and capacity value per KW for each unit
    • Simulation of clearing energy price with multiple units
    • Computation of optimal supply mix and resulting combined energy and capacity price

 

  • Power contracts and independent power production
    • Risk allocation and computation of penalties in PPA contracts from marginal cost analysis
    • Value of PPA from long-run marginal cost analysis
    • Value of availability provisions from LOLP and outage cost analysis
    • Trade-off between risk, O&M costs and availability
    • Value of heat rate and efficiency in markets with different fuel prices from marginal cost analysis
    • Value of capacity in different seasons from short-run marginal cost simulation

 

  • Start-up costs, heat rate curves and minimum capacity in supply curve
    • Discussion of heat rate curves
    • Equations for incremental and average heat rate curves
    • Incorporation of heat rate curves and fleet of generation
    • Day ahead scheduling and real-time dispatch
    • Volatility of day-ahead prices and real-time prices

 

Course summary and close

Why us


We have a combined experience of over 60 years providing learning solutions to the world’s major organisations and are privileged to have contributed to their success. We view our clients as partners and focus on understanding the needs of each organisation we work with to tailor learning solutions to specific requirements.

We are proud of our record of customer satisfaction. Here is why you should choose us to help you achieve your goals and accelerate your career:

  • Quality – our clients consistently rate our performance ‘excellent’ or ‘outstanding’. Our average overall score awarded to us by our clients is nine out of ten.
  • Track record – we have delivered training solutions for 95% of worlds’ top 100 banks and have trained over 250,000 professionals.
  • Knowledge – our 150 strong team of industry specialist trainers are world leading financial leaders and commentators, ensuring our knowledge base is second to none.
  • Reliability – if we promise it, we deliver it. We have delivered over 20,000 events both in person and online, using simultaneous translation to delegates from over 180 countries.
  • Recognition – we are accredited by the British Accreditation Council and the CPD Certification Service. In an independent review by Feefo we scored 96% on service and 95% on product