Download - First Hydro Analysts Conference July 2005
First Hydro Analysts ConferenceJuly 2005
IntroductionPaul Jenkinson
First Hydro Company• Key locations:
~ Commercial Office - Bala House~ Dinorwig pumped storage power station~ Ffestiniog pumped storage power station~ Visitor centre
• The only Pumped Storage Power Stations in England and Wales (representing 75% of Great Britain Pump Storage capacity)
• Station built initially to support the management of the System~ now well placed to participate in the competitive market place
• Full time employees 188~ reorganisation programme completed - 20% staff reduction
delivered• Experienced management and operational teams
~ integrated teams across all locations~ incentives aligned to financial performance
Mike Maudsley Director ProductionMike Hickey Director Asset Management
Asset overview
The pumped storage principle
Dinorwig
DinorwigThe largest pumped storage plant in Western Europe• Commissioned in 1983
• Total plant capacity 1,728 MW
• 6 reversible pump/turbines:~ each generating up to 288 MW and pumping at 275 MW~ capable of achieving full load from stand still in < 2 minutes~ capable of achieving full load from Spinning in < 20 seconds
•Cycle Efficiency 74-75%
• Total water storage capacity ~9 GWh
• Connection to the National Grid via six 18/400kV 340 MVA transformers
• Two 3.3kV 2 MW diesel generators provide ‘black start’ capability
DinorwigPlant design profile
Dinorwig – inside the mountain
DinorwigShaft base and High Pressure water tunnel
DinorwigWater manifold
DinorwigSection of plant
DinorwigGenerator/motor
DinorwigPump/turbine
Ffestiniog
• Commissioned in 1963• Total plant capacity 360 MW• 4 units (with separate pump and turbines on the same shaft):
~each generating up to 90 MW and pumping at 75 MW~capable of achieving full load from stand still in < 5 minutes~capable of achieving full load from Spinning in < 60 seconds
• Cycle efficiency 72-73%• Remotely operated from Dinorwig• Total water storage capacity ~1.4 GWh• Connection to the National Grid via two 16/275kV 190 MVA
transformers
Ffestiniog First major pumped storage station in the UK
Ffestiniog Plant design profile
Ffestiniog Section of plant
FfestiniogStwlan Dam
Plant performance
12 s
90 s 360 s
30 sShutdown
All times are typical
Generate
SpinGenerate
Pump
SpinPump
Dinorwig mode times change (seconds)
Competitive advantage
Typical start up times (minutes)
1.5 2.5
DinorwigFfestiniog CCGT(hot)
Coal(hot)
Typical loading rates (MW/minute)
3000
300 10 10
DinorwigFfestiniog CCGT(hot)
Coal(hot)
60
90
First Hydro Company
Reliability and availability
• Mode changes per annum c.35,000
• Overall mode changes reliability c.99%
• Overall technical availability c. 95%
Plant focus• Safety first (no compromise)
• Operate and maintain plant to achieve competitive flexibility and reliability~working expertise in Electrical, C&I, Mechanical, Civil and IT~experienced, broad based and flexible teams~balance of quality in-house maintenance and specialist
contract work
• Close working relationship between Plant and Commercial Teams~Shift Trading and plant control room~daily and weekly operational strategy~ long term operational and maintenance programme
Commercial overviewDavid Alcock, TradingKevin Dibble, Marketing
Commercial efficiency
• Buy electricity overnight - pump water to top reservoir• Release water to generate at times of peak price
MarchlynMarchlyn
PerisPerisImport 1 MWh
Pumping Generation
Export ~.75 MWh
•Overall cycle efficiency approximately 75%•Additional costs include transmission losses and Balancing System charges•Overall cycle efficiency approximately 75%•Additional costs include transmission losses and Balancing System charges
Markets• First Hydro operates in three markets• Has competitive advantage• Proportion of revenues from each market changes year on
year
Ability to deliver almost any contract shape and despatch plant right up to gate closure
Premium dynamics
Frequency response and fast reserve capabilities
Competitive Advantage
Trading
Balancing Mechanism Plant Reliability
Ancillary Services
Market
Maximising asset valuePeople• Solid understanding of physical market drivers (real-time and
long term)• Strong commercial and plant integration
Systems• Robust trading and despatch systems• Customised real time information and decision support systems
Processes• Strong focus on understanding and managing business
opportunities • Traders discretion on price/product
~ strict risk management limits~ daily (half-hourly) benchmarking of trading performance
Capacity allocation
• Capacity/energy allocated according to value
Ancillary ServicesAncillary Services
TradingTrading
Balancing MechanismBalancing
Mechanism
2,088 MW10.5
GWh/day
2,088 MW10.5
GWh/day
Ancillary services overview • Physical services to facilitate system security and power
quality~wholesale markets operate on half-hourly basis~ancillary services enable system balancing on a second-
by-second basis
• Procured by National Grid Company (NGC)~GB System Operator~NGC obliged to operate the system in an ‘efficient,
economic and co-ordinated’ manner~costs managed via a regulated annual incentive scheme
Forward procurement options• Standing Reserve (20 mins. notice)
~ annual or seasonal tender~ hydro, OCGT, demand-side~ approximately 2000 MW
procured annually
• Fast Reserve (2 mins. notice)~ monthly tender, few eligible
providers, small volumes
Short term procurement• Inherent level of reserve delivered
by the market• Residual reserve purchased by
NGC via the Balancing Mechanism• Require ~3500 MW of reserve in
total
Source: NGC
MW
Key ancillary servicesReserve
• NGC manage system frequency in line with statutory obligations (within 1% of 50Hz) and operational requirements
• Dynamic Frequency Response~ units operate at part-load with output varying in response to
frequency deviations - provides “second-by-second energy balancing”
~ basic level of capability is mandatory for all generators - utilised as required, mainly from steam plant
• Static Frequency Response~ automatically triggered by low frequency events
- pumped storage, demand-side providers have capability
• NGC currently forward contracts for enhanced services through negotiation
Key ancillary servicesFrequency response
• Deals with residual energy balancing once traded markets have closed
• Generators have sold half-hourly energy, and scheduled plant to meet contract position
• System operator matches generation to actual demand by adjusting generation (or demand) via offers or bids in the BM
• All parties required to bid into the BM, but due to flexible nature of assets, FHC is well-placed
ScheduledenergyScheduledenergy
Required
Demand
BM offersrequiredBM offersrequired
Example:
Balancing Mechanism (BM)
Fast-acting plant in the BMMorning run-up• Gas/coal unit synchronisation
risk• High rate of change of demand =
greater risk
Plant trip• Unpredictable events that
require fast-acting plant held in reserve
Evening TV pickups• Domestic load swings driven by
TV events• Largely predictable• NGC able to plan using
combination of fast and slow plant BOAs = Bid-Offer Acceptances
System Demand and Fast Response BOAs(25 May 2005)
20 GW
25 GW
30 GW
35 GW
40 GW
45 GW
1 3 5 7 9 11131517192123252729313335373941434547
Half-hourly Settlement Period
-100 MW
0 MW
100 MW
200 MW
300 MW
400 MW
500 MW
600 MW
700 MW
800 MW
Fast Response BOAsDemand
Source: NGC
Demand pick-upsChampions League Final
-2500 MW
-2000 MW
-1500 MW
-1000 MW
-500 MW
0 MW
500 MW
1000 MW
1500 MW
2000 MW
Coal
Gas
Fast
Bids
Offers
BM activityChampions League Final
Wholesale markets (trading)Trading considerations• Capacity and energy dedicated to ancillary services• Margin (net of pumping) available in traded markets• Probability of being used in balancing mechanism• Reservoir management
Key advantages• Asset physical ability to deliver any shape close to real time• Experienced traders in APX/short term markets• Proprietary live market information and decision support
tools• Systems facilitate trading up to gate closure
+ve Sales
-vePurchases
• Developed over time through combination of:
~ structured deals with counterparties
~ standard products traded OTC
• Broadly balanced position
• Handed to shift trading team Friday morning
Example of energy-balanced book4,800 MWh pumping; 3,600 MWh generation
-600
-400
-200
0
200
400
600
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Hour
MW
Pumping
Generation
Trading process 1Week ahead position
Trading process 2Typical power exchange price shape - winter
Marginal Cost
Half-hourly Settlement Period1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47
£/MWh
Pump
Generate
Tradingexample
Hour
Trading process 3Generation optimisation
-600
-400
-200
0
200
400
600
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
MW
Pumping
Generation
300 MWh moved from hour 19-20Net value-added £15,000
Buy @£30/MWh Sell @
£80/MWh
Tradingexample
Hour
Trading process 4Pump/generation optimisation
-600
-400
-200
0
200
400
600
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
MW
Pumping
Generation
Net value-added £6,000
Buy 450 MWh @ £20/MWh
Sell 600 MWh@ £25/MWh
Tradingexample
Final position
Long term trading
APX
Shift trading
Bilateral
Trading process 5Evolution of final position
• Diversity in revenue streams
• Competitive advantage through assets~includes people and proprietary systems
• Niche expertise in short term markets and system services
• The UK’s most dynamic provider of electricity
Summary
UK portfolio overviewSteve Riley
First Hydro
• Key addition ~excellent fit within portfolio
•Unique asset with competitive advantage
~speed of response and reliability~positioned to benefit from
tightening reserve margin
•Energy trading~deep market knowledge -
benefits entire portfolio
UK asset portfolio
• 5 assets with gross capacity of just over 5 GW~ IPR net share = 7th largest portfolio in the UK
• Largely merchant capacity
• Good fuel diversity~gas, coal and pumped storage
• Robust operational and environmental performance
FuelType
IPRShare(MW)
Rugeley
Deeside
Derwent
First Hydro
Saltend
Total
GrossCapacity
(MW)CountryName
England
Wales
England
Wales
England
1,050
500
214
2,088
1,200
5,052
1,050
500
50
1,462
840
3,902
Coal
Gas
Gas
PS
Gas
Rugeley
Saltend
First Hydro
Deeside
Derwent
UK recovery signals• Tightening reserve margin
~ 2.4 GW nuclear plant (Magnox) expected to retire before 2010
~ limited new-build anticipated before 2010
~ 2.6 GW interconnector links to Netherlands and Norway unlikely to proceed before 2010
~ renewable growth largely from intermittent wind power - requirement for firm power during peaks
~ environmental legislation will restrict 10-12 GW non-FGD output
• Increasing development and acquisition activity
Source – National Grid January 2005 Update. Forecast includes all generation projects under construction and all planned closures of generation.
England & Wales Reserve Marginabove Peak Demand (2004-10)
5%
10%
15%
20%
25%
2004 2005 2006 2007 2008 2009 2010
Notional New-Entrant Point
ForecastReserve Margin
Notional Target Reserve
Spreads - recent history
• Over the past 12 months, gas prices have increased on the back of rising oil price
~ current oil prices remain close to all time high
• Coal prices (delivered ARA) have declined since Jan 05 from ~$80/t to ~$65/t
• EU ETS commenced January 05
• CO2 credit prices have increased since
Jan 05
• Baseload power prices increased end 04/early 05 driven by rising gas price and CO2 cost
UK Historic BaseloadGas & Coal Spreads£/MWh
0
5
10
15
20
M
Gas Spreadpre-CO2
Coal Spread pre CO2
J J A S O N D J F M A M2004 2005
UK market - forward view• Forward spreads indicate recovery
~ gas prices are expected to decline
~ coal prices expected to remain steady
• As environmental constraints tighten Rugeley will shift to a more peaking role
• From Jan 2005, cost of emitting CO2 has been treated as an additional marginal cost:
~ will be offset by NAP allocation~ market liquidity increasing~ early clarity on Phase 2
allocations important
Forward prices sourced from Argus
Forward Baseload Gas Spreads,
0
2
4
6
8
10
12
14
2005 2006 2007 2008
£/MWh
Gas Spreads pre-CO2
Gas Spreads post-CO2, no allocation
Environment - implications for IPR Legislation
• EU Emissions Trading Scheme commenced Jan 05~ CO2 credits trading at €20-€23/t
in June 05 for Phase 1
• Large Combustion Plant Directive (2008)~ reduces emissions of SOx, NOx
and dust from coal/oil plant
• Targets for renewable generation~ EU policy to reduce long term
dependence on fossil fuels~ current HMG target of 10%
generation by 2010 under pressure
IPR strategy
• Actively trade emissions to support plant operations and maximise asset value~ May 05 allocations imply load
factors of 44% for Rugeley, 55% for Deeside, 64% for Saltend
• Rugeley~ final decision, likely December
2005 ~ focus on low sulphur coals to
maximise value under LCPD constraints
• Renewables~ biomass co-firing at Rugeley
Summary• Well balanced asset portfolio
~positioned to benefit from recovering spreads~portfolio enhanced with acquisition of Saltend
• First Hydro - key asset~excellent fit in UK portfolio~particularly in a tightening reserve margin
• Focus on maximising financial returns