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Trading and Procurement Policy

As regards the gas sector, the first half showed a recovery in consumption compared to the same period of the previous year, partly due to weather conditions and partly due to the recovery in several industrial sectors.

The first months the year were dedicated, on the one hand, to balancing the contract portfolio and optimizing the short-term position and on the other hand to finalizing new contracts for the 2010-2011 heating season.

Shipping activities conducted by Hera Trading experienced a favourable impact of the winter weather, essentially in line with the forecasts made at while assembling the trading portfolio.

The necessary short-term adjustments were made through purchase or sale regulations at the Virtual Point of Exchange, and in Baumgarten using the transport capacity reserved to the same on the Trans Austria Gasleitung Gmbh (TAG). These transactions generally took place at particularly favourable market conditions, rapidly evolving into effective trading activity, which contributed to improving the results over and above the budget forecasts.†

The purchase of gas intended for REMI was finalised in two tranches in March and May, at market conditions which, even ex-post, were among the best to be found on the market.

In June flat procurement amounts were also defined for the purpose of balancing the portfolio for direct supplies from Hera Trading to REMI and for off-network development by Hera Comm.

As regard the electricity market, the first six months of 2010 were characterised by a slight recovery in consumption.

Despite the increase in demand, the price recorded by the Italian stock exchange (average exchange sales price - PUN) remained substantially unchanged due to the overcapacity of the electricity system. The PUN remained substantially unaffected, even by the strengthening of commodities prices converted into Euro. Therefore, the Spark Spread decreased further.

This context also included fewer opportunities on the Dispatching Service Market (DSM) as a result of the reform of the electricity market envisaged by the Anti-Crisis Law 2/2009.

It was possible to positively contrast the negativity of the market scenario, specifically in the second quarter, by changing strategy on the Day-Ahead Market and the DSM.† This resulted in the achievement of particularly satisfying results by the Teverola and Sparanise plants. The situation of the COGEN plant remains more complex. As it is strongly constrained by district heating restrictions, it cannot take advantage of market opportunities linked to the flexibility of operations.

Activity in the electricity sector during the half year also took the form of management/optimisation of Hera Commís purchase portfolio through transactions carried out on the Stock Exchange and Over the Counter (OTC) platforms.

As a result of participation in tenders during 2009 and 2010, Hera Trading remains one of the Sole Purchaser suppliers for the non-eligible market.

As regards management of the commodity and exchange risk, operations during the first half of 2010 were particularly effective. They have now been consolidated in both the gas and electricity sectors through a concentrated risk portfolio, which provides for destructuring formulas and for netting of positions and hedging of volumes. Hera Trading activated this instrument at the beginning of 2007 to manage hedging activities. It is proving essential for dynamically and adequately operating on the wholesale and retail markets.

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