ANNUAL REPORT 2011 - DONG Energy

isk and risk policy Exposure and hedging
price risks for renewable generation
In connection with the development of renewable energy
sources, primarily offshore wind farms, a major part of
the earnings from wind power will come from regulated
pricing. The most important elements are fixed tariffs
(Denmark and Germany) and guaranteed minimum
prices for green certificates (the UK and Poland).
The market price risk for the wind power portfolio is
treated as a direct price risk and managed with a time
frame of up to five years based on a target for Cash-Flowat-Risk.
market trading
When the Group’s desired hedging level has been determined,
the exposures are transferred to the market trading
function, which is then responsible for executing the physical
and financial transactions in the market. It is not always
possible to hedge the transferred price risks in full.
DONG Energy therefore has some remaining exposure resulting
from these activities.
The market trading function also balances the physical
volumes in the market and, to a lesser extent, engages in
active taking of positions to ensure an ongoing market
presence and thus gain more detailed market insight. Furthermore,
DONG Energy has assumed the role of market
maker in the Danish electricity market, which entails further
market risks.
Currency risks
The majority of DONG Energy’s activities entail exposure
to fluctuations in exchange rates. The key currencies are
USD, GBP, NOK, PLN, SEK and EUR. The total net exposure
is calculated on an ongoing, consolidated basis. The
Group aims to minimise its net exposure via forward contracts,
swaps and options. Currency positions are determined
on the basis of estimated operating cash flows in a
five-year time frame. Currency risks in connection with net
investments in foreign subsidiaries and loans without any
time frame are also included.
At the end of 2011, fixed tariffs and guaranteed minimum
prices for green certificates accounted for two-thirds of expected
earnings from the wind power portfolio in 2012.
Wind Power has hedged 32% of its market price exposure
in 2012.
In 2012, a 10% decrease in the electricity price would
lead to a DKK 82 million decrease in EBITDA.
Breakdown of income from wind farms in 2012
27%
41%
32%
Market prices
Hedged portion
Certificates
Fixed tariffs
The energy price exposure in market trading was DKK 2 billion
at the end of 2011.
The overall one-day 95% Value-at-Risk (VaR) was
DKK 55 million.
GBP and USD constitute the largest exposures, made up
of a long GBP position and a short USD position. At the
end of 2011, 97% of the currency exposure in 2012 had
been hedged.
DONG ENERGY DONG ENERGY GROUP ANNUAL REPORT 2011 – manaGEmEnt’s rEviEw 47