Stanwell Corporation Limited
Notes to the consolidated financial statements (continued) 2017
(continued)
The Group is exposed to electricity price movements in the NEM. To manage its electricity commodity price risk, the Group has entered into electricity sales contracts and a number of electricity derivatives (including over-the-counter and exchange traded swaps, caps and option contracts) in accordance with the Board approved Trading Risk Management Policy. For the majority of these derivatives, the Group receives from counterparties a fixed price per megawatt hour and in return pays the actual observed pool price. These contracts and derivatives assist the Group to provide certainty in relation to revenue received. Electricity price risk exposures are measured weekly through the review of the Group's mark-to-market exposure of the net derivative asset and liability position and relevant at-risk simulation methods. The Group is exposed to environmental certificate price movements through the requirement to comply with various regulatory environmental schemes as part of normal business operations. To manage the environmental certificate price risk, the Group buys and sells these certificates in both the spot and forward markets. The Group is exposed to oil price movements through the sale of gas not consumed in the operation of its power stations and the purchase of diesel for the operation of its power stations and the vehicles and equipment at its coal mine. To manage its oil price risk, the Group has entered into a number of over-the-counter forward fixed price contracts. These contracts assist the Group to provide certainty in relation to revenue received and fuel costs.
The following commentary and tables summarise the sensitivity of the Group's financial assets and financial liabilities to foreign currency exchange risk, commodity price risk and interest rate risk. Analysis is performed on a pre-tax basis using similar information to that which would be provided to management and reflects the impact on the Group's financial position should certain price movements occur. The sensitivity in the mark-to-market of the electricity derivative portfolio at balance date was investigated by observing the price relative impact of annualised volatility in the forward curve over a selected period under observable market conditions. The analyses assume upward and downward movements of: currencies of 20% (2016: 20%), commodity prices of 30% (2016: 15%) and interest rates of 100 basis points (2016: 100 basis points), which reflects the market sensitivity of positions held by the Group at balance date. The sensitivity of the Parent entity’s financial instruments is not materially different to the amounts disclosed below.
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STANWELL ANNUAL REPORT 2016/17 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2017
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