Generation asset analytics and risk management

You will gain an overview of different price models and numerical techniques to allow you to value and manage a portfolio of thermal, wind, and hydro generation assets along with standard power contracts. You will learn how to delta hedge assets, calculate a variety of risk metrics such as value-at-risk, earnings-at-risk, potential future exposure, and how to analyse these risk metrics.

This course can be tailored to your needs. A sample outline is shown below:

Day 1


Implementing models and numerical techniques

  • Lessons from the data:
    • Power, gas, oil and other fuel prices
    • Temperature, wind
    • Load/bid stacks
  • Overview of modelling approaches
    • Single-factor models
    • Multi-factor models
    • Hybrid models
  • Parameter estimation
    • Volatility, mean reversion, jump parameters
  • Numerical techniques
    • Simulations
    • Trinomial trees
    • Least squares Monte -Carlo

Workshop: calibrating models and implementing Monte-Carlo simulations

  • How to estimate mean reversion parameters
  • How to estimate jump parameters
  • How to estimate spot volatility
  • Implementing Monte-Carlo for mean reverting models
  • Implementing antithetic techniques


Valuing generation assets part 1: basic concepts and valuation of thermal generation assets

  • Understanding the concept of generation assets as real options
  • Operational parameters of generation assets
  • Impact of running regimes on modelling requirements
  • Methods for valuing thermal generation assets
    • Spark spread options
    • Using Monte-Carlo simulation techniques
    • Stochastic dynamic programming
    • Least squares Monte-Carlo methods
  • Advantages and disadvantages of each method
  • Spark spread options
    • Intrinsic and extrinsic value
    • How to apply the spread option approach to value generation assets
    • Incorporation of emissions
  • How to apply Monte-Carlo simulation techniques
    • Implementing real thermal unit properties

Workshop: valuing thermal generation assets

  • How to value generation assets as a portfolio of analytic spread options
  • How to incorporate emissions
  • Monte Carlo evaluation of a spark spread generator model
  • Monte Carlo evaluation with antithetic sampling of a spark spread generator
  • Monte Carlo evaluation of a dual fuel unit


Day 2


Valuing generation assets part 2: approaches to value wind and hydro assets

  • Modelling wind generation
    • What the data tells us
    • Implementing a single unit
    • Implementing a wind farm
  • Types of hydro generation assets
    • Run of river
    • Pump storage
    • Single reservoir
    • Multiple reservoir and cascaded systems
  • Methods for valuing hydro generation assets as real options
    • Using stochastic dynamic programming
    • Monte-Carlo simulation techniques
  • Other generation assets
    • Geothermal
    • Solar
    • Compressed air storage

Workshop: valuing wind and hydro assets

  • Monte-Carlo evaluation of a wind generator
  • Monte-Carlo evaluation of a hydro generator


Hedging and risk management

  • How to hedge generation assets
    • 'Delta' hedging
    • Static hedging with portfolios of options
  • How to define and calculate key risk metrics
    • Value-at-risk
    • Earning-at-risk/revenue-at-risk/gross margin at risk
    • Potential future exposure

Workshop: delta hedging generation assets

  • Delta hedging of heat rate options
  • How to calculate deltas for generation assets
  • Earnings-at-risk for full requirements contracts

To discuss your in-house course requirements, contact us.