Risiko
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Risiko

Risk Controlling for the Energy Industry

Energy companies are exposed to many risks. The control and management of such risks are essential components of the company’s management. Depending on the risk, there are automated evaluations and reports or manual preliminary work required.

Often risk management is done in spread sheets based on complex and unclear implementations. Besides that, the market for risk controlling software offers standardized solutions, which mostly require a conversion of the provider’s complete trading and portfolio management systems. Those products demand a great amount of integration effort and are often not able to fulfill the specific requirements of an energy company with its individual profile. Depending on the risk type most of the standard approaches are not satisfying (for example one assumes for the sake of simplicity that the given data is normally distributed). Our claim is to apply realistic and comprehensible models which describe the crucial risk factors.

We provide a risk controlling software which can be integrated easily due to its architecture and has no impact on other systems (PFM, Trading). The software is able to display complex and specific risks and hedge methods and is not tied to any restrictions of commercial spread sheets with respect to model selection and calibration. At this point the software benefits from the longstanding experience of the financial mathematical modeling at the Fraunhofer ITWM.

Depicted Risks

Our software is able to evaluate all common risks:

  • Market price risks
  • Liquidity risks
  • Trader’s risks
  • Credit risks
  • Temperature based risks
  • Quantity and structure risks 

An extension in view of individual company risks (e.g. precipitation, inflow of hydropower plant) is possible.

For the market price risks individual models are implemented for several commodities (electrici-ty, carbon, gas, CO2). Additionally, the correlation between the single commodities are considered. The calibration of the model parameters is based on market data.

Applied Methods

Depending on the risk the software offers various methods. Besides the classical performance indicators Market-to-Market and Value-at-Risk, hedge specifications can be examined and the Profit-at-Risk can be calculated. Moreover, scenario based evaluations are possible in order to include external simulation computations. On the one hand, the software uses analytic standard methods and on the other hand it also allows complex models with Monte-Carlo methods. Further models and methods can be added easily to the already existing portfolio of evaluations.