Statkrafts approach to trading and origination in the Continental markets

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Statkrafts approach to trading and origination
in the Continental markets

• Harald von Heyden
• Managing Director
• Statkraft Markets Continental"Nordisk
  Krafthandler Forening"
• Paris 1st November 2002

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Agenda

• A few words on Statkraft
• Statkrafts Market Entry
• Requirements for Success
• Outlook

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The Good News first.
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Overview of the Statkraft Group

• STATKRAFT IN FACTS
• Norways largest producer of electricitywith 33
  TWh and 9 GW hydro capacity
• Equity capital 4.2 bn
• Total capital 9.4 bn
• Hydroelectric generation 59 TWh
• 5,000 employees
• 690,000 customers
• Statsforetak (SF) state ownership
• STRENGTHS
• Trading Risk Management
• Technical operation, dispatch Commercial
  optimisation of hydro
• 10 years experience with liberalisation
• High creditworthiness (AAA)

Trondheim 100
HEAS 49
BKK 49
E-CO 20
Stat- kraft
Agder 45
Sydkraft44.6
ScanEnergi 24
Statkraft Markets BV
StatkraftMarkets GmbH
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Statkraft Markets Continental

• FACTS
• Vision to become leading energy trader in
  Northern Europe- Regional expansion- Commodity
  expansion
• Start-up of European activities in 1998
• Strong analysis base
• Today, 60 employees in two offices
• Trading volume in 2002 of 35 TWh
• Profitable

Statkraft SF
Statkraft Markets GmbH
SM (Ned.) B.V.
EWZ
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Statkraft Markets Continental

• ORIGINATION DRIVEN STRATEGY...
• Focus on non-standard products
• Structured products asset optimisation
  (evaluation of flexibility)
• Natural regional focus on flexibility-long
  countries
• Renewable Energy
• .TRADING AS LIQUIDITY PROVIDER
• Financial and physical trading in the
  ContinentalEuropean electricity and gas markets
• Active market player and participant in key
  European exchanges
• Operation of Baltic Cable
• X-Border Trading Operations

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Agenda

• A few words on Statkraft
• Statkrafts Market Entry
• Requirements for Success
• Results and Lessons Learnt

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Motivation for Market Entry

• Realisation of scale economies by applying
  coreskills to Continent- Experience with
  liberalised Markets- Commercial Optimisation of
  Hydro GenerationLimited growth potential in
  Nordic market- Maturity of Market- Regulator
  blocks further Norwegian asset
  acquisitionsIncreasing convergence of Nordic
  and Continental energy market- Hedging
  Opportunities- Arbitrage Opportunities

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Nordic vs. Continental Market

• 2.300 MW of physical interchange
• Different composition of generation
  stack UCTE Nordel Installed Hydro
  Capacity 20 50 Hydro Generation 16 53Res
  ervoir Capacity 2 30
• Correlation of prices- EEX-NP System 0.7 - 0.8

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Transmission Capacity in Lines and Subsea Cables
Nordel - UCTE
Denmark W -gt Germany 1350 MWGermany -gt Denmark
W 950 MWDenmark E Germany 600
MWSweden -gt Germany 460 MWGermany -gt
Sweden 390 MW Sweden Poland 600 MW
Finland
Norway
1000
Sweden
600
1300
Denmark
600
600
600
Nether- lands
1400
Poland
Germany
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Statkrafts Market Entry Strategy

• Overriding principles- Theory of Concentric
  Rings- Focus on core competencies- Controlled
  growth
• Attitude- Analysis-driven approach to markets -
  Modest growth with limited risk appetite-
  Patience and endurance
• Results- Focus on niche opportunities- Entry
  into mature markets no first mover- Still
  around- and profitable

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Statkrafts Concentric Rings Approach

• Electricity
• 1999 Dutch electricity

• Amsterdam

• Dusseldorf

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Agenda

• A few words on Statkraft
• Reasons for Internationalisation
• Requirements for Success
• Results and Lessons Learnt

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Requirements

• INTERNAL
• Talent Entrepreneurial organisation
• Some Assets and lots of Capital
• Effective risk and cost management
• EXTERNAL
• We need a market we can trade in

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Internal Requirements

• Talent Entrepreneurial organisation
• Energy experience
• Flexible for business development (project-driven
  growth)
• Assets Capital
• Baltic Cable
• Further expansions
• Effective risk cost management
• Systems
• Expansion of parent systems
• Nordic attitude

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External Requirements
Creation of a Regulatory Framework that grants
market transparency and information symmetry
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New challenges for dominant incumbent
utilities...
Value Stake
at
Value before deregulation
Competitive pressure
Cost cutting
New business
Concentration benefits
Value in new game
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..leads to new trade-offs
Value
Reasons for true competitive behavior
Prepare for the future
Calm the regulator
Retard market development and competition
Reasons for maintaining an implicit cartel
Maintain market dominance
Time
Dominant utilities will adjust their strategy
over time to maximize value
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Prices - Wholesale baseload
Who is influencing who?
Correlation Germany (CEPI/LPX/EEX, NP system
0.74)
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NordPool as Leading Example

• Liquidity at Nordpool as reflection of confidence
  in the market
• 112 TWh Spot Trading
• 2650 TWh Term Trading (including cleared volumes)
• with annual consumption of 500 TWh
• Rules of Conduct
• EEX develops in the right direction
• 36 TWh (100 GWh p.d.)
• 500 TWh (1.5 TWh p.d.)
• with annual consumption of 500 TWh
• but further liquidity increase critical

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Information Duties _at_ Nordpool

• Generation
• Load Data
• X-Border

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Agenda

• A few words on Statkraft
• Reasons for Internationalisation
• Requirements for Success
• Outlook

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Outlook

• MARKET
• Market gives opportunities? Tighter power
  balance with shortages - in extreme
  weather situations (cf. Dec-01) - due to
  possible nuke phase-out in Germany - of
  reliable fast regulating peak production assets
  ? Big investments in renewables, especially wind
  power production facilities -
  increases need for balancing power -
  implies additional business opportunities
• Critical to see the development of liquidity in
  the wholesale market ? Market Transparency
  Information Symmetry
• STATKRAFT
• Profitable Sustainable Position
• Statkraft is based on a healthy fundament, but
  further expansion depends on market development

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Thank You for Your Attention !Harald von
HeydenStatkraft Markets GmbHNiederkasseler
Lohweg 1840547 Düsseldorfharald.von.heyden_at_statk
raft.de