Energy Markets and Risk Management

With the introduction of competition into electricity markets that were previously regulated monopolies, incredible amounts of value have been released to consumers. Utilities were forced to sharpen their pencils in order to manage the volatility and risk they used to pass on to ratepayers. They needed to learn how to trade and contract energy, forecast demand more accurately, understand bottlenecks and excesses in their systems - and take steps to balance it all out.  Operationally, market competition has led to optimization of all aspects of plant and grid, whether in fuel purchases, outage planning, or maintenance services procurement.

As experience with competitive energy markets matured, and the data that drove them grew, so too did comfort with more market-exposed financing structures. Investors and their lenders started developed uncontracted, merchant power plants to feed the grid. Tenors and leverage ratios grew. But the energy markets are not static. Technology changes, legislative changes, demand changes, and input commodity changes (think: natural gas), environmental pressures all meant that the assumptions did not remain static. The fundamentals of each plant evolved, some for the better, some for the worse.

HGA has been supporting market players and their regulators around the world since the early days of market opening. We have helped to build and augment market mechanisms. We have worked with project developers to structure sound assets in uncertain markets. We have worked with owners and investors to assess and optimize their trading and generating portfolios. We have helped lenders to reassess their debt holdings when market conditions did not pan out as predicted. And we have helped companies to sell assets when it was time to exit. See a sampling of our experience below.

Energy Markets and Risk Management Experience

Served as team manager and project finance expert in the conduct of an independent credit risk analysis for a German bank’s $1 billion portfolio of “take-and-hold” limited recourse US merchant power loans. Led the design and implementation of a proprietary project finance credit risk assessment methodology. Analyzed on-grid viability of 35 funding vehicles comprising 80 projects within nine US power ISO sub-markets through market modeling and project-by-project fundamental assessment of financing structures, contracts, and project documentation. Quantified probability of default, loss given default and provided the bank’s credit committee with provisioning recommendations.        
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