ECMWF products and the European energy markets ECMWF, Reading, 16 th of June 2005 Stefan Meulemans Sempra Energy Europe Ltd. London.

ECMWF productsECMWF productsand and

the European energy marketsthe European energy markets

ECMWF, Reading, 16th of June 2005

Stefan Meulemans

Sempra Energy Europe Ltd.

London

LiberalizationLiberalization

Free choice of gas and electricity provider

Opening of the European energy markets

Pan-European market?Pan-European market?

Currently national but interconnected gas and electricity markets

Goal is to have one European supply-demand based market

National electricity marketsNational electricity markets

Nord Pool ScandinaviaOMEL SpainPowernext FranceEEX GermanyAPX The NetherlandsUKPX The UK

Oil and GasOil and Gas

Brent crude, NYMEX and heating oil

Gas

Futures and forwardsFutures and forwards

Day ahead (EC) Week ahead (EC) Month Ahead (EC) Cal ahead

Daily QENOYc1 [Candle]08/03/2005 - 07/06/2005 (GMT)[Professional]

14 21 31 07 14 21 28 06 13 24 31 07Mar 05 Apr 05 May 05

PriceEUR

27.3

27.6

27.9

28.2

28.5

28.8

29.1

29.4

29.7

30.3

30.6

30.9

31.2

31.5

31.8

32.1

32.4

32.7

27

30

33

QENOYc1, Last Trade, Candle06/06/2005 31.90 32.25 31.80 32.23

Demand and supplyDemand and supply

These two variables determine the forward electricity, gas and oil prices

Weather important parameter, both for demand and supply

TemperatureTemperature

Heating demand (contrast north-south)

Cooling demand, more in USA but changing climate?

Cooling water nuclear plants

Melt ice and snow

Cold spell early March (Paris)Cold spell early March (Paris)

-5

0

5

10

15

20

25

30

01/0

1/20

05

15/0

1/20

05

29/0

1/20

05

12/0

2/20

05

26/0

2/20

05

12/0

3/20

05

26/0

3/20

05

09/0

4/20

05

23/0

4/20

05

07/0

5/20

05

21/0

5/20

05

04/0

6/20

05

Date

Deg

rees

Cel

sius

Cold spell early March NBPCold spell early March NBPDaily QGA2NB [Line]

11/11/2004 - 10/06/2005 (GMT)[Professional]

Dec Jan Feb Mar Apr May Jun2004 2005

PriceGBp

20

40

60

80

120

100

QGA2NB, Close(Last Trade), Line06/06/2005 30.25

Day ahead German electricityDay ahead German electricity

Daily QDE-B-1D=RWEE [Line]21/12/2004 - 08/06/2005 (GMT)[Professional]

03 17 31 14 28 14 28 11 25 09 23 06Dec 04 Jan 05 Feb 05 Mar 05 Apr 05 May 05

PriceEUR

20

40

60

80

0

100

QDE-B-1D=RWEE, Close(Last Quote), Line06/06/2005 42.00

Gas demand UKGas demand UK(Sempra)(Sempra)

223.5

0

221.0

9

234.8

0

207.5

0

220.0

322

6.35

197.4

8

188.1

0 191.5

8

207.6

4

216.6

0

217.3

0 220.5

9

219.8

4

170

180

190

200

210

220

230

240

250

11-J

un

12-J

un

13-J

un

14-J

un

DA - 15

-Jun

BOW

- 16

-Jun

BOW

- 17

-Jun

WE -

18-J

un

WE -

19-J

unW

DNW -

20-J

unW

DNW -

21-J

unW

DNW -

22-J

unW

DNW -

23-J

unW

DNW -

24-J

un

-40

-20

0

20

40

60

850 hPa temperature anomaly850 hPa temperature anomaly(WSI)(WSI)

Hot weather August 2003Hot weather August 2003

Prices spikes due to A/C Cooling water nukes Drought and low

hydro levels Low wind in

Germany

WindWind

Short range deterministic – storms!

Mid range ensemble ECMWF

Installed wind capacity

DeterministicDeterministic

Wind production Spain (MWh/h)

0

500

1000

1500

2000

2500

3000

3500

4000

2 81

42

0 2 81

42

0 2 81

42

0 2 81

42

0 2 81

42

0 2 81

42

0 2 81

42

0 2 81

4

Tue Wed Thu Fri Sat Sun Mon Tue

Ensemble GermanyEnsemble Germany(Point Carbon)(Point Carbon)

Nordic marketsNordic markets

Weather crucial due to very high hydro capacity

Market very dependent on ECMWF model

Dry weather in Nordic…Dry weather in Nordic…

Cal 03 in 2002

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

02/0

1/20

02

02/0

2/20

02

02/0

3/20

02

02/0

4/20

02

02/0

5/20

02

02/0

6/20

02

02/0

7/20

02

02/0

8/20

02

02/0

9/20

02

02/1

0/20

02

02/1

1/20

02

02/1

2/20

02

Wet weather in Nordic…Wet weather in Nordic…

Cal 05 in 2004

150.00

170.00

190.00

210.00

230.00

250.00

270.00

290.00

02/0

1/20

04

02/0

2/20

04

02/0

3/20

04

02/0

4/20

04

02/0

5/20

04

02/0

6/20

04

02/0

7/20

04

02/0

8/20

04

02/0

9/20

04

02/1

0/20

04

02/1

1/20

04

02/1

2/20

04

Currently…Currently…

Cal 06 hovering and no obvious trend

Very important to see extreme drought or wet weather

Confidence level crucial

Daily QENOYc1 [Candle]16/03/2005 - 14/06/2005 (GMT)[Professional]

22 01 08 15 22 29 09 18 25 01 08 15Mar 05 Apr 05 May 05 Jun 05

PriceEUR

27.9

28.2

28.5

28.8

29.1

29.4

29.7

30.3

30.6

30.9

31.2

31.5

31.8

32.1

32.4

32.7

30

33

QENOYc1, Last Trade, Candle13/06/2005 32.80 32.80 32.70 32.75

ECMWF 10 day ensembleECMWF 10 day ensemble(Point Carbon)(Point Carbon)

ECMWF cluster day 10ECMWF cluster day 10(Meteo Consult)(Meteo Consult)

NAO outlookNAO outlook

Based on ECMWF Particularly day 10

important Only what is not yet

known by market important!

Negative NAO years bullish et vice versa

Nordic NAO day 10 based on EC ensemble (12Z and 00Z)

-2

-10

1

2

34

5

23/0

2/20

0525

/02/

2005

27/0

2/20

0501

/03/

2005

03/0

3/20

0505

/03/

2005

07/0

3/20

0509

/03/

2005

11/0

3/20

0513

/03/

2005

15/0

3/20

0517

/03/

2005

19/0

3/20

0521

/03/

2005

23/0

3/20

0525

/03/

2005

27/0

3/20

0529

/03/

2005

31/0

3/20

05

ECMWF northern hemisphereECMWF northern hemisphere(WSI)(WSI)

Monthly outlookMonthly outlook(Met Office)(Met Office)

Probabilistic long-range outlookProbabilistic long-range outlook

Reduced risk on mid-range positions Now particularly for temperatures and

precipitation, but wind would be interesting too

When signal is strong, it makes sense to take significant long or short positions

Seasonal outlookSeasonal outlook(Met Office)(Met Office)

Particularly useful if strong trends

Interesting for electricity, gas and fuel oil markets (also USA)

Also hydro

Also COAlso CO22 and weather derivatives and weather derivatives

Cold winter or hot summer would also increase CO2 output, and eventually general electricity prices

Reduce risk in speculative weather derivatives contracts, or decreased hedging if seasonal outlook is showing strong trend

SummarySummary

ECMWF products useful to be ahead of the energy markets. Know first

What could be done?What could be done?

ECMWF 15-day but should start soon?Monthly outlook on daily base? Very

interesting for development significant large-scale trends. Ready in morning?

NAO ensembles?Skill research wind (extremes)