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Trading and Procurement Policy

As far as the gas sector is concerned, the first half of the year has seen a fall in consumption of more than 4% compared with the same period in the previous year. The relative recovery in consumption recorded in the industrial sector was more than offset by the reduction recorded in the service and domestic sectors, which were affected by the mild weather conditions and the reduction in use in the thermo-electric sector.

As usual, the first months of the year were dedicated, on the one hand, to the management of the contract portfolio with the aim of balancing and optimising the Groups short-term position and, on the other hand, to finalising new contracts for the 2011-2012 thermal year.

As far as shipping activities conducted by Hera Trading are concerned, the daily adjustment of the position prevented impacts on logistic and storage costs.

The necessary short-term adjustments were made through purchase or sales adjustments at the Virtual Exchange Point (VEP) in Baumgarten using the reserved Trans Austria Gasleigtung GmbH (TAG) transport capacity and at Net Connect Germany using the transport capacity contracted to Transitgas. These transactions generally took place at favourable market conditions and made it possible to achieve results that were slightly better than those forecast.

The purchase of gas intended for regulation and measurement stations was finalised in two stages in March and April, at market conditions which, even ex-post, were among the best to be found on the market.

In April, it was possible to purchase storage capacities for a year at particularly favourable conditions, from two industrial counterparties under the scope of allocations made pursuant to Legislative Decree no. 130 of 13 August 2010.

During the 2nd quarter flat procurement amounts were finally defined for the purpose of balancing the portfolio for direct supplies from Hera Trading to regulation and measurement stations and for off-network development by Hera Comm for the 2011-2012 thermal year.

As regards the electricity market, the first six months of 2011 featured a slight recovery in consumption compared with the same period in the previous year (+1.6%).

In spite of the increase in demand, the spark spread of thermal power plants (CCGT) decreased further, as a result of the considerable over capacity, getting close to zero. The increase in the price recorded on the Italian stock exchange (national standard price - NSP) was not sufficient to offset the strengthening of commodities prices which determine the price of gas.

The negativity of the market scenario was countered, as far as Hera was concerned, by operating on the Dispatching Service Market (DSM). The Teverola and Sparanise plants achieved particularly satisfying results. The situation of the COGEN plant remains more complex, as it is very much constrained by district-heating restrictions, meaning it cannot take advantage of market opportunities linked to the flexibility of operations.

As far as trading in the electricity sector and environmental certificates are concerned, the results for the half-year were basically in line with the budget, in spite of the sharp fall in European Union Allowances (EUAs) in the second half of June.

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

As regards management of commodity and exchange risk, operations during the first half of 2011 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 adequate and dynamic operations in both the wholesale and retail markets.

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