Commodity risk refers to the uncertainty about the expected value of profit raised from purchase and sale of commodities.
Commodity risks include:
- Price risk, Price risk mainly due to Price volatility caused by directional moves and correlation changes
- Volume risks related to changes in expected power production (due to availability of natural resources, as water, wind, etc.) and demand shifts or discrepancies between Generation/purchase and sales profiles schedules (e.g., hourly schedules)
CRM policy and procedures have been defined and set up within the Enel Group. Their objective is to analyze risk trends over time and monitor the risk exposure on the basis of several analysis dimensions (i.e. geographic, organisational, commodity etc) and to compare it with respect to Risk Limits determined by the top management.
The main CRM processes are:
- Identify risk factors;
- Prioritize the risk factors, defining the most relevant for the business;
- Measure the relevant risks;
- Define quantitative limits to risk exposure;
- Monitor the evolution of the exposure against the limits;
- Managing the limit trespassing events.
Commodity Risk exposure is measured with reference to two different types of portfolios:
- Industrial books: related to core business activities (fuels and power purchases, power sales, power generation)
- Trading books: related to speculative trading activities, carried out to hedge exposures in industrial portfolios and catch opportunities offered by future changes of commodity prices.