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Power Structured Products in Italy
Customized products to meet different needs.
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Product Features
Structured products are customized products according to the needs of the parties. In most cases they have a value linked to the flexibility and the optionality of the same. They arise from the need of the producers to manage the flexibility within their own portfolio or to increase the value of their assets such as plants or contracts. They are products that require specific analyses and models, not of immediate valorization, but which can bring extra value in the asset portfolios. They are products that mostly do not have high liquidity and that are developed between counterparties in the sector.
Virtual Power Plant
It replicates a physical asset without operational and management risks.
The Virtual Power Plant is a virtual generation plant through which it is possible to replicate a physical generation asset. With a view to trading, VPP allows to replicate - in a virtual way according to the favourite granularity - assets whose production revenue can be indexed to different commodities (coal, gas, oil, CO2, etc.). It is the ideal product if you intend to diversify your portfolio by simulating a physical asset without incurring operational and management risks.
Main advantages of the product:
- Risk diversification: integrating the VPP with one's portfolio means protecting oneself from market volatility.
- Flexibility: it allows to seize market opportunities with flexible products.
- Zero risks: it allows a monetization of a physical asset without operational and management risks.
These products can be indexed to different underlying assets (coal, gas, oil, CO2, etc.). The offer can be customized by managing the product with the most suitable combinations according to one's needs.
Some examples:
- VPP clean spark spread daily cal 19 baseload/peakload: daily option for all 2019 indexed to gas (TTF or PSV or NBP) and CO2 with daily nomination the day-ahead delivery. In case of nomination, you pay the indexed price and receive baseload/peakload power the next day. In case of no nomination you will not receive energy and you will not have to pay anything. The buyer will still have to pay the option premium.
- VPP dark spread monthly cal 18 baseload: monthly option for all 2018 indexed to coal with nomination two days ahead the month's delivery. In case of nomination, you pay the indexed price and receive baseload power for the whole month. In case of no nomination you will not receive energy and you will not have to pay anything. The buyer will still have to pay the option premium.
Virtual Hydro Plant
Dispatching of a generation asset without the risks of the physical plant.
The Virtual Hydro Plant is a financial instrument that replicates the physical asset (hydroelectric plant) in a virtual way. Specifically, it allows to buy or sell a contract (VHP-Virtual Hydro Plant) that simulates a hydro plant and it makes it possible to establish the dispatching of a generation asset without the need to construct or manage it and with the granularity one prefers (from hourly to daily). It is the ideal product for those looking for the same flexibility as a physical plant, avoiding risks thereof, and for those who want to differentiate the activity by country and technology within the generation portfolio.
Main advantages of the product:
- Defined price: it allows to set the price for the energy supply.
- Zero plant management risks: all the benefits of the physical plant without related risks.
- Diversification: it allows to differentiate the activity in new technologies and markets.
- Flexibility: from hourly to daily with customized specifications.
Price limit (Asian put option)
Less exposure to price volatility without renouncing to potential market gains.
Financial contract that gives the buyer the possibility, but not the obligation, to sell a certain volume of energy at a fixed price (strike). This product is useful for those trying to reduce the exposure to price volatility without renouncing to the potential "rise" of the market, but can also be used in a speculative way. This option is much safer for the producer as it is regulated against the average hourly price of OMIE (automatic execution after the expiry of the coverage period).
Main advantages of the product:
- Flexibility: it combines different hedging strategies and the most advantageous decision is made depending on the market.
- Risk reduction: minimum selling price by eliminating the potential disadvantage of the market.
- Upward potential: coverage of price risk without renouncing to the possible increases in the market.
Tolling
Hourly dispatching of a generation asset without the risks of the physical plant.
Tolling is a contract between an Energy Manager (toller) that supplies the fuel and the manufacturer of a plant (tollee) with the purpose of spreading the risks related to the production of energy. The contract allows the toller to have the hourly dispatching of a generation asset with the management of energy flows (power and gas) and commercial flows from and to the plant without the risks related to manufacturing, commissioning and operational management of the plant.
Main advantages of the product:
- New markets: free access to new markets thanks to a local tollee.
- Zero plant management risks: all the benefits of the physical plant without risks and related costs.
- Interconnection management: availability of power both in the country of the asset and in the neighbouring countries through the management of interconnections.
- Flexibility: hourly flexibility based on market needs.
- Price spikes: it allows to use power price spikes through the sale of energy.
- Sourcing: for a possible sales strategy to final customers.
Participation Swap
Price risk management.
The Participation swap is a product that allows the buyer of the product to have a minimum price (floor) without foregoing the benefit generated by an increase of prices and without the initial payment of a premium. The buyer of the product buys a put option without premium on a percentage of the volume of energy that wants to hedge (for example, 60%) and sells a swap for the rest of the percentage until a 100% of the volume is reached (in this example, 40%). The strike of both, the option and the swap, are the same, and are below market price. In this way the buyer ensures a minimum price for the 100% of the volume and, at the same time, retains a part of the profits in case of an increase of prices in the future: the buyer of the participation swap ends up selling energy at an effective price with a floor and with an indexation to the market price minus a discount (which depends on the percentage fixed in the contract).
Main advantages of the product:
- Price risk management without giving up the upside: it allows to ensure a minimum price (floor) without giving up a possible increase in the market prices.
- There is no initial payment of a premium for the floor: this structure does not require the payment of a premium at the time of contracting.
- Flexibility: by defining different percentages of the option and the swap, it is possible to choose different exposures to price risk.