Energy Trading

In the course of this module, students gain deep insights into the value chain of energy trading. Thereto, the module covers the following topics: development of european and global energy markets; energy markets as fundament for risk management; risk management of company portfolios from the perspective of energy producers, consumers and traders; grid-bound energy sources electricity and gas supplemented by references on coal, crude oil and emission certificates.

Upon successful completion of the module, students can name the most important energy market places and their products. They understand the functioning of energy markets and the central role of energy trading. Further, they understand key concepts of risk management and can compare them. Moreover, they can select organizational concepts and most important supporting processes of energy trading fitting to a given situation. They can assess the order book (e.g. mid-prices, spreads), evaluate financial products, and calculate clearing prices of interconnected systems and hedging requirements. Finally, they can analyze realistic tasks in the energy industry, transfer them into appropriate trades and trading portfolios, and explain the market price developments.

During the exercise course, students deepen their knowledge on how to program the financial operations of an order book, whether in an auctions setting or in continuous trading. They will learn how to hedge a portfolio while employing financial derivative instrument strategies. They will be able to calculate key financial indicators, such as mark-to-market valuation, build and interpret a price forwards curve, and calculate and interpret key risk measures such as Value-at-Risk and Conditional-Value-at-Risk. Furthermore, they will calculate the marginal cost of electricity generation and its impact on the economics of CO2 emissions trading. Additionally, they will learn how to set up and solve a mathematical optimization problem to decide the best generation mix setup.

Basic understanding of energy industry and energy techniques

The module combines various learning methods:
- Basic knowledge, theoretical concepts and practical examples will be provided through the lecture
- Controversial discussions and active participation in class are encouraged to deepen understanding of the concepts presented
- In integrated exercises, students will apply their theoretical knowledge to concrete issues and analyze selected case studies
- Students will get insights into practice by an excursion to the trading floor of Stadtwerke München

The exercise course is carried out in a typical exercise resolution manner. Problem sheets are handed out to the students beforehand, they solve them at home before the session, and the sessions are used to solve the problem set.
However, students will be asked to apply the learned content immediately, interactively, through exercises and examples that will allow them to develop a practical understanding of the presented concepts.

Students are expected to come to the exercise courses to better prepare for the examThe exercises are meant to help the students master their understanding of concepts and methods seen in the lecture, and develop their ability to apply them to real world problems, and to implement solutions using a spreadsheet tool.
Students perform these activities in groups of two, to stimulate discussion and reflection, and engage in a positive and informal learning environment.

Presentation slides, white board, spreadsheet exercises

• Bhattacharyya, S.: Energy Economics – Concepts, Issues, Markets and Governance. Springer 2011.
• Borchert, J.; Schemm, R.; Korth S.: Stromhandel – Institutionen, Marktmodelle, Pricing und Risikomanagement. Schäffer Poeschel 2006.
• Burger, M.; Graeber, B.; Schindlmayr, G.: Managing Energy Risk. Wiley Finance 2008.
• Erdmann, G.; Zweifel, P.: Energieökonomik – Theorie und Anwendungen. Springer, 2nd Edition 2010.
• Fiorenzani, S.; Ravelli, S; Edoli, E.: The Handbook of Energy Trading. John Wiley & Sons 2012.
• Hull, J.C.: Options, Futures and Other Derivatives. Prentice Hall, 8th Edition, 2011.
• James, T.: Energy Markets – Price Risk Management and Trading. Wiley Finance 2008.
• Konstantin, P.: Praxisbuch Energiewirtschaft. Energieumwandlung, -transport und -beschaffung im liberalisierten Markt. Springer, 2nd Edition, 2009.

The module examination is based on a written exam (60 minutes). The written exam has two parts. The first part (≤ 20%) consists of multiple-choice questions. Students have to demonstrate that they are familiar with the basic concepts, products and functioning of energy markets and energy trading. They show that they are able to compare key concepts of risk management. The second part (≥ 80%) consists of open questions and calculations. In the open questions, students have to show their ability to analyze theoretical concepts and current developments. In the calculations, students have to proof their ability to apply methods and concepts of Energy Trading. Students show that they can analyze real-life tasks in the energy industry, explain the market price developments and design appropriate trading strategies and energy portfolios, and. Students are allowed to use a non-programmable calculator.