Transcript Tractebel’s Hydro Allocation Process HSBC Utilities Day November 27, 2008 Manoel Zaroni Torres - CEO.

Tractebel’s Hydro Allocation Process
HSBC Utilities Day
November 27, 2008
Manoel Zaroni Torres - CEO
1
Background

At CCEE the “resources” of a generation co. are compared to its sales on a monthly basis.


“Resources” stand for:

Purchases from third parties

Thermal generation

Hydro energy allocated
Difference between “resources” and sales is settled at Spot Price (PLD).

Tractebel 's energy availability is almost fully contracted up to 2010.

Tractebel is entitled to fuel reimbursement by CDE when coal-fired plants are dispatched
due to merit order or inflexibility.
2
Thermal Generation
Exposure to Spot Prices
2008
Maximum
Dispatch
Assured Energy
(Port. MME 303)
PLD Exposure
~ 375 avgMW
Inflexibility (CDE)
~ 375 avgMW
t
Note: figures referred to CCEE’s settlement point.
3
Thermal Generation
Exposure to Spot Prices
Maximum
Dispatch
BRL/MWh
~ 280 avgMW
Thermal Dispatch (Merit)
Settled by PLD (revenue)
Thermal Assured
Energy
PLD Curve
2
1
~ 375 avgMW
Thermal Substitution Energy (Merit)
Settled by PLD (expenses)
Inflexibility
~ 375 avgMW
1 - Minimal Exposure Cost Permanence
2 - Maximum Exposure Cost
Dispatch due to inflexibility (based on the purchase of
200,000 tons of coal per month)
TBLE is entitled to coal reimbursement (by CDE)
t
2008
4
Thermal
Substitution
Cost
Hydro Generation
Exposure to Spot Prices
Secondary Energy (MRE): settled by PLD (revenue)
Maximum
Dispatch
Year
GSF < 1 (MRE): settled by PLD (expenses)
Real Dispatch
Hydroelectric generation above or below
the “Seasonalized” Assured Energy
is valued by “MRE Tariff” (~ R$ 8/MWh)
“Seasonalized” Hydro
Assured Energy
Allocated Energy (MRE)
Allocated Energy above or
below the “Seasonalized” Assured Energy
is settled by PLD
t
The impact on the results is less significant than the thermal substitution
5
Mechanisms to Mitigate
Thermal Plants Exposure
Net Buyer
at CCEE
PLD
Exposure
Net Seller
at CCEE
ok
Total Sales Contracts
Merit Thermal
Generation
Thermal Inflexibility
Hydro Assured
Energy
... and so on
Portfolio x Resources
Purchase
Contracts
m
m+1
m+2
m+3
An appropriate monthly allocation of the hydro resources over the year can mitigate the
exposure arising from the thermal substitution energy to be purchase at spot price
6
Spot Price
History Data
PLD in a year’s 1st half is likely to be lower than in 2nd half
7
Monthly Allocation
of Hydro Resources
Year X1
Hydro Assured
Energy
PLD Expectation
Sale Contracts
Assured Energy can be allocated
monthly over year x1
Thermal Assured
Energy
Decision is taken in Dec. Year x0
(unchangeable afterwards)
Thermal
Inflexibility
Purchase
Contracts
8
t
Monthly Allocation
of Hydro Resources
Net Seller at CCEE
Net Buyer at CCEE
Year X1
Hydro Assured
Energy
PLD Expectation
Sale Contracts
Thermal Assured
Energy
Thermal
Inflexibility
Purchase
Contracts
9
Thermal Dispatch
t
Decision Traps

10
Regulatory uncertainties
•
Risk aversion mechanisms (i.e., Risk Aversion Curve and Target Level)
•
Changes in PLD pricing model
•
Out-of-merit thermal dispatch

GSF resulting from overall hydro allocation

Unexpected unavailability of power plants

Price/availability of short-term energy purchased from third parties to (i) offset a
net buyer position and (ii) leverage future overallocation

Trade off: sales of short-term energy at PLD+Δ% X future overallocation leverage