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European petroleum majors have moved into offshore windfarm projects, with large investments and ambitious capacity and production targets. In aggressive bidding for Contracts for Difference in the UK, where oil companies have played a key part, we have seen the inflation-adjusted strike price fall 65% from 2015 to 2019. Researchers question whether LCOE will fall to the same extent and would like to see more research on the economic return of the companies making offshore wind investment. We address this by a transparent project economics analysis of the UK bottom-fixed Dogger Bank project. It is the largest offshore windfarm project in the world under development and the UK is the country with highest offshore wind capacity. The project is owned by Equinor, SSE Renewables and ENI. Our analysis shows that the project is expected to be unprofitable. Several of the input variables, however, are subject to considerable estimation uncertainty. We also present a low case and a high case scenario. Decomposition of the high case reveals factors that can contribute to a profitable wind power industry. We discuss financial issues facing oil company investment portfolios combining low return/ low risk renewables and high return/high risk petroleum. Offshore windfarms are organised as special purpose vehicle (SPV) companies. We analyse the economic interactions between the SPVs and the oil companies, and address accounting and financial issues. [ABSTRACT FROM AUTHOR]

In this paper, we present a study on Reinforcement Learning optimization models for automatic trading, in which we focus on the effects of varying the observation time. Our Reinforcement Learning agents feature a Convolutional Neural Network (CNN) together with Long Short-Term Memory (LSTM) and act on the basis of different observation time spans. Each agent tries tomaximize trading profit by buying or selling one of a number of contracts in a simulated market environment for Contracts for Difference (CfD), considering correlations between individual assets by architecture. To decide which action to take on a specific contract, an agent develops a policy which relies on an observation of the whole market for a certain period of time. We investigate whether or not there exists an optimal observation sequence length, and conclude that such a value depends on market dynamics. [ABSTRACT FROM AUTHOR]

Zero‑carbon electricity is a pre-requisite for decarbonisation of the wider economy and many scenarios envisage rapid expansion of renewables. IEA estimates a need to double the annual rate of investment to 2030. A rapid transition to low carbon electricity creates a risk to investors because projects being financed now will generate their revenue in a zero‑carbon electricity system for which there is no track record of price formation. Although the cost of renewable power has fallen greatly, future revenues from renewables are still affected by market price risks that are often outside the control of generators. If risks are difficult to quantify, they may be mis-priced, leading to inefficient premiums being added to the cost of capital, which could increase the overall cost of the transition. In this context many countries around the world provide support for low carbon energy, such as the UK Contracts for Difference. In this paper we investigate exposure to price risk caused by uncertainty over the mix of technologies used to achieve decarbonisation, which we term 'transition risk', and how this varies under different technology mixes, and for different policy regimes. We show that exposing investors to transition risk could increase the cost of delivering the renewables needed for a zero‑carbon electricity system by around 25% or £7bn/year compared to policy options that reduce exposure to wholesale market price risk. The paper concludes that as long as transition risks remain high, de-risking policy mechanisms can help to minimise the overall cost of achieving net-zero. • We characterise the current stage of the low-carbon transition as a 'build phase', requiring large volumes of investment • Uncertainty over the final physical state of the decarbonised system causes significant financial risk to investors • 'Contracts for difference' (CfDs) help to manage this 'transition risk' and reduce the cost of capital for projects • Exposing projects fully to transition risk could increase costs by a third, and raise the cost of transition by £7bn per year [ABSTRACT FROM AUTHOR]

This study examines the effects that Contracts for Difference (CFDs) have had on the Australian equity market, either as an accelerant for mispricing, or as a source of increased market functionality through the addition of a new tradable product and increased liquidity. The Australian Securities Exchange (ASX) made the decision to segregate CFDs to a separate ring-fenced exchange in November 2007. This study uses EGARCH techniques to test for the effects of CFDs on return volatility at the time of CFD inclusion and segregation in Australian equity markets at the index and equity-specific level. A fully worked explanation and example of a CFD-influenced ‘overhang’ is also provided. The results provide evidence that cannot reject the presence of ‘overhangs’ in Australian equity markets.

In deregulated power markets, electricity suppliers have the option to trade in the spot market, derivatives market, and bilateral contract market. The spot market is always available and open to competition, but the variability and risk incurred need to be carefully handled. The suppliers might allocate their capacity in the derivatives and bilateral contract market if these alternatives are more viable. The strike price, bilateral contract price, and spot market prices need to be used to decide the capacity allocation problem considering the generation cost of the supplier. This paper first examines the market design and electricity trading in the Turkish electricity market. Then three problems were proposed for a coal-fired coal unit that aims to allocate its capacity to spot, derivative, and bilateral contract markets to maximize its expected profit. A Monte Carlo method is used for allocated electricity capacities, spot market, strike, and bilateral contract price scenarios. A simulation methodology is then proposed that includes capacities allocated to each market and price scenarios. The best capacity allocation strategy is determined that return the highest expected profits for all market price samples. The model is illustrated for a coal unit in the Turkish electricity market. The results are presented for the case, including 100 spot price samples, 100 capacity scenarios, 3 scenarios for the strike, and bilateral contract prices. The sensitivity analysis for spot price volatility on the profit is also presented with 20% volatility increase. It is shown that allocating the capacity to more than one market can increase the total expected profit for a power supplier and the rate of increase varies depending on the scenario set. • Electricity trading of a thermal generator in different markets is discussed. • Capacity allocation to spot, derivative and bilateral contract market is modeled. • Price and capacity scenarios for the Monte carlo simulation is developed. • It is shown that capacity allocation to different markets can increase total profit. • A supplier can determine its strategy based on the price expectations. [ABSTRACT FROM AUTHOR]

Investors widely use contracts for difference ( CFDs) to leverage and short sell underlying financial assets. We investigate the after cost performance of investors in Australian Securities Exchange listed share CFDs, and find that market order CFD trades earn small positive returns at the daily horizon, with negative returns reported for one month to one year horizons due to financing costs. Market orders also net sell positions, which suggests that investors use CFDs for shorting opportunities. Overall, we find that liquidity demanders in CFDs obtain favourable execution, which is inconsistent with the view that CFDs are used by naive individuals. [ABSTRACT FROM AUTHOR]

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Following recent developments in some European jurisdictions, the Committee of European Securities Regulators (CESR) proposed, on 9 February 2010, 'to extend major shareholding notifications to instruments of similar economic effect to holding shares and entitlements to acquire shares'. This initiative pushes for mandatory Economic-only Disclosure of Major Shareholdings in Europe (EOD). By providing twenty arguments against the CESR proposal, this paper seeks to spur a lively discussion as to whether mandatory EOD is desirable. It puts forward that European institutions are well advised to refrain from implementing the CESR proposal in its current form. If at all, implementing a requirement to report to regulators (Economic- only Reporting - EOR) and limiting EOD to very large positions serves social welfare better than EOD and avoids major differences between European securities law and US securities regulation. [ABSTRACT FROM AUTHOR]