Kauppatieteellinen tiedekunta, 2016
Laskentatoimi ja rahoitus
Master's Degree Programme in Finance
Objective of a hydro producer is to deliver sustainable energy to fulfill electricity supply and simultaneously maximize revenues under current conditions. Electricity is a unique commodity with no possibility for storage after it is produced. Hydro power can be considered as storable, since it is possible to store water in reservoirs and use the energy during demand peaks as balancing power with extremely low starting costs. Because of this feature, flexibility, it makes trading and optimization planning particularly useful for hydropower producers. That is why hydro production traders have an important task in allocating volumes to the highest priced hours in day ahead markets (=spot markets). This thesis is written from a Nordic hydro power producer’s point of view to fill the need of developing traders performance measurement further.
Purpose of the thesis is to examine which factors affect the performance of hydro production optimizers’ trading in Nordic market environment in day-ahead electricity markets. Examination is done inside three different market areas; Finland, SE1 and SE2 with four different rivers. Trading performance is measured with value creation (VC), which describes the allocation of trades between differently priced hours. Based on previous findings of operative actors, spot sales are negatively and price volatility positively associated with VC. Impact of seven factors are researched in this thesis for all of the rivers; price volatility, spot sales, inflows, reservoir levels, must runs, available capacity and total consumption. Also in Swedish case market area changes are tested and controlled.
This study finds evidence supporting previous findings of spot price volatility and spot sales impact in trading results. In addition to these two, also inflow levels were statistically significantly impacting VC for all of the examined rivers. Depending from the rivers also total consumption, reservoir level, area changes and must run levels did impact trading results and traders ability to create value creation.
Value Creation, Hydropower, Nordic Electricity Markets, Physical Trading, Spot Trading.