Electricity markets are structurally different to other commodities, and the real-time dynamic balancing of the electricity network involves many external factors. Because of this, it is not a simple matter to transfer conventional models of financial time series analysis to wholesale electricity prices. Its unique features are not observed in other markets, such as weekly and daily seasonality’s, on-peak vs off-peak hours, price spikes, etc. The fact that electricity is not easily storable and the requirement to meet the demand always makes forecasting techniques challenging.
This Financial Modelling & Tariff Setting for Utility Sector training course presents the current state-of-the-art electricity price and financial forecasting methods, including statistical time series analysis, equilibrium models, and portfolio methods. It is designed to help delegates build their own utility tariff setting model from scratch and engage in simulation cases to acquire the best practices in modelling revenue requirements.
By the end of this training course, the participants will be able to:
- Understanding the new challenges of the Energy sector
- Evaluate the impact of the latest Energy regulatory frameworks
- Develop economic models relevant to the Power Industry: RAB
- Understand the dynamics and challenges of Forecasting and Modelling Utility Price
- Evaluate the performance of Power Industry projects using financial models
The delegates on this training course will receive thorough training on the subjects utilising a variety of proven adult learning teaching and facilitation techniques include the following:
- A presentation in a highly interactive manner
- Individual and group activities, interspersed throughout the sessions, along with appropriate case studies
- Video documentaries that will highlight the significant teaching features
Professionals in the power sector need specialised skills, particularly financial modelling for tariff setting, which is a core skill set lacking in the municipal and utility space.
The organisation will gain a broader range of benefits that participants gain and apply to benefit their organisations.
- The rationale behind Traditional Financial Models vs Utility Tariff Model
- The quantitative techniques of tariff paths such as regulatory asset base, the weighted average cost of capital, and energy and input costs
- Understand the dynamics and challenges of Forecasting and Modelling Utility Price
- Tools to Forecasting in Utility Sector (OPEX, CAPEX and Depreciation)
- The practical skills to build a Tariff Model from Scratch
- Sensitivity of Tariff to WACC and Capital Costs
The course will see delegates build their financial model for “utility tariff setting”, with the constituent parts (regulatory asset base, the weighted average cost of capital, energy/input costs etc.) unpacked and developed in detail throughout the week.
By attending this ETC training course, the delegates will acquire the following skills and competencies:
- Develop a greater understanding of the intricacies of Utility Regulatory Framework
- Acquire financial engineering vocabulary
- Build Economic Tariff Model from the scratch
- Develop investment calculations: OPEX, CAPEX & Depreciation
- Make more sound decisions regarding future Utility projects and plans
This specialized one-week course provides managers, senior professionals and advisors in utilities, regulatory authorities and government the skills needed to set tariffs in a regulated context. The seminar is suitable to a wide range of professionals in Power Sector but will greatly benefit:
- Professionals in utility sector
- Employees in Municipalities
- Officials in regulatory authority or government
- Utility Board member
- Infrastructure Fund managers
- Those responsible for managing or monitoring Energy related projects
DAY ONE: INTRODUCTION TO UTILITY ECONOMIC REGULATION MODEL DRIVERS AND SCENARIOS
- Power Utility Challenges
- Key Regulatory Objectives / Aspects of Tariff Regulation
- Objectives of Economic Regulation
- Overview of Economic Regulatory Methodologies
- Need for Financial Models
- Final Model Overview
- Financial Modelling as A Regulatory Tool
DAY TWO: UTILITY SUSTAINABILITY
- Economic Sustainability
- Financial Sustainability
- Modelling Alternatives: Real vs Nominal - Firm or Equity Holders - Tax Treatment - Flow vs Discount Rate
- Demand Projections
- Revenue Requirement Building Blocks
- Best practices in modelling revenue requirements to determine tariffs
- Presentation of Simple Integrated Model: Single Year Model
- Limitation of Test-Year Approach: Multiyear Tariffs
DAY THREE: REGULATORY ASSET BASE
- Asset Base Evolution
- RAB & Depreciation Notes
- Asset Valuation
- Asset Base: Which assets to include and how to value them for regulatory purposes?
- Historic vs Replacement Values
- Final Asset Base
- Historic vs Forecast Modeling: Develop flexibility in the model to review historical data and determine a forecast
DAY FOUR: OPPORTUNITY COST OF CAPITAL WACC
- Weighted Average Cost of Capital (WACC)
- Risk Aversion
- Risk vs Returns
- Cost of Debt (Credit Ratings)
- Country Risk Premium and Sovereign Risk Rating
- WACC Calculations: Add WACC Calculation and Revise Current Tariff Requirement
- Sensitivity of Tariff to WACC and Capital Costs: Review the impact of each input to WACC on the tariff required
DAY FIVE: DEPRECIATION, OPEX, AND CAPEX
- Regulatory Aspects of Depreciation
- Depreciation Calculations I
- Depreciation Calculations II
- OPEX: Benchmarking Efficiency Factors & Regulatory Treatment of Losses
- Operating Cost: Develop operating costs calculations Efficiency Factor Estimates
- Investments: Develop Investment Calculations (definition and use of CAPEX drivers - energy users peak demand, etc.)
- Exogenous Investments
- Endogenous Investments: Financial Restrictions & Impact of WACC and Depreciation on Financeable Investments
