Management of electricity price and volume risk and commodity risks
3.7 Management of electricity price and volume risk and commodity risks
The electricity price and volume risks are not significant to the company’s turnover and financial result over time. If the volume of transmitted electricity deviates from the forecasted volume, the result may be a deviation in the company’s turnover and financial result. This can lead to a surplus or deficit compared with the allowed reasonable return for the year in question, which the company will aim to offset during the subsequent financial year.
The company is exposed to electricity price and volume risk through transmission losses. Loss power purchases and the price hedging thereof are based on the Corporate Finance and Financing Principles approved by the Board of Directors. Moreover, the company has a loss power purchasing policy, approved by the Executive Management Group, for hedging and for physical electricity purchases, as well as operative instructions, instructions for price hedging and control room instructions. The purpose of price hedging is to reduce the impact of market price volatility and enable sufficient predictability in order to keep the annual pressures on grid service fees of loss energy at a moderate level. Price hedging is implemented over a four year horizon such that by the end of September in the year preceding the delivery, the price risk for the next year is fully hedged. For the price hedging of loss power purchases, the company mainly uses NASDAQ OMX Commodities quoted products. The allowed hedging products are specified in the loss power purchasing policy. The company can also use OTC products comparable with NASDAQ OMX Commodities products. The nominal values, fair values and exposures are disclosed in Note 23.
Commodity risks other than those related to loss energy purchases arise if the company enters into purchasing agreements in which the price of the underlying commodity influences the final price of the investment commodity (commodity price risk). As a rule, commodity price risks and exchange rate risks are fully hedged. A risk that amounts to less than EUR 5 million when realised can be unhedged for reasons of cost-effectiveness.