DNV delivers dynamic power price risk assessment for global chemical industry corporation
Helping the customer to reduce exposure to the merchant risks of the European wholesale electricity market.
Key benefits:
- Helping to reduce environmental footprint and create a better corporate image
- Optimize the customer’s future electricity procurement to remain competitive
- Reduce exposure to the merchant risks of European wholesale electricity market.
About the customer
The customer is a global chemical company in the top 10 of world’s largest producers of polyethylene (PE) and polypropylene (PP) with operations in more than 100 countries, employing several thousand people. In 2020 the company announced a new corporate strategy with sustainability in its core. To achieve its long-term sustainable goals, the company needed to get a better handle on its electricity consumption, to reduce CO2 and optimize procurement costs.
The customer challenge
The chemical industry is facing future cost uncertainty due to the high share of electricity in the total production expenditures and increasing volatility in the wholesale electricity markets. The customer wanted to minimize its future production costs for its assets located in the Nordic region of Europe and limit dependency on random price volatility.
The customer needed a support designing a mitigation strategy against merchant risks in the Finnish electricity market up to 2050 as well as an extended analysis of the future power price volatility, to get a better grip on its energy procurement process and reduce exposure to the merchant risks of European wholesale electricity market.
DNV’s solution
The customer turned to DNV to quantify future market risks by looking beyond a standard forecast of average market prices and analyzing dynamic market phenomena at a higher resolution. First, DNV used its European power market model to obtain insights into future energy mix, price-duration curves, demand and monthly wholesale price levels in the Finnish market. This gave an in-depth understanding of underlying spot market structure with its drivers and sensitivities.
Next, DNV used its sophisticated stochastic approach and generated thousands of future scenarios based on the fundamental model forecast combined with analysis of historical trends inherent to Finnish electricity system. As a result, a vast amount of price and generation data has been obtained, all with realistic weather and imbalance profiles.
This allowed DNV to quantify the value of dynamic merchant risks and assess future market uncertainties beyond standard average values.
Benefit to the customer
The chemical industry faced with increased competition and the urgency to transition to more sustainable and eco-friendly operations. Having a detailed understanding of how future procurement costs will evolve is crucial in tackling both challenges. Not only can it help reduce environmental footprint and create a better corporate image, but it can also help customers get ahead of the competition. The extended power price forecast with quantitative assessment of dynamic market uncertainties was directly applied in the customer’s procurement and hedging strategy. Conventional industry risk margins, e.g. X % over direct procurement cost, have been replaced with meaningful values based on the dedicated market modelling.
