RWE Supply & Trading : Coal Task Omkar Vedpathak

There are a host of interrelated factors that determine the price of coal which can be considered with respect to its supply and demand. Demand-linked factors Past trends: Worldwide electricity production trends and the proportion of electricity production fuelled by coal will be a major driver of price, since coal provides the largest proportion of power for electricity in the world. Coal usage volumes in industrial processes, for example for the production of dyes, fertilisers and also for the manufacture of iron ore/steel. Projections: Projected growth in electricity production fuelled by the emerging economies of India, China & Brazil, is driven primarily by coal. This needs to be weighed against the rate at which coal power plants are being commissioned and decommissioned, as these would be the primary purchasers of coal. Alternative forms of energy: The most commonly used alternatives for coal can be competitors for decision makers in energy companies looking to build a new power plant. If oil, Natural Gas, Renewables (hydropower), (technology coal to oil conversion technology Government Legislation: The compulsory and voluntary credits schemes which may require producers of CO2 to purchase carbon credits will add a positive price pressure.

These demand pressures themselves are driven by demand for the underlying measures, for example Supply-linked factors Cost of sourcing: Exploration, mining (surface/underground) and refining equipment and labour costs form a large bulk of the cost of manufacture of coal. These tend to be lower in developing economies. Transportation costs: This is driven by the price of oil which fuels shipping and energy to power the trains that transport the bulk of coal. Energy security: The reliability of future supply of coal depends on known and projected coal reserves. Economic and political stability of coal producing regions will also form a basis of supply pressures. Advances in technology: way to store electricity? Efficiency //Coal to oil >

Coal type: There are various different energy contents of coal and purities of coal, hence different prices resulting from the associated costs / value. Government legislation: Government schemes may subsidise cost of renewable energy forms, which would encourage fewer power stations to be built

Speculation This is linked to both supply and demand, for example if coal power-station operators may decide to stockpile a certain amount dependaing on its anticipation of demand . This in turn may keep the price low, as the buy-side can expect

2. To gather data regarding the aforementioned major drivers of the supply and demand, statistical data on past, present and projected trends must be analysed. Possible sources for the data include energy consultancies, data statistics from internationally based energy agencies (compiled from government data and in-house estimates) such as the International Energy Agency (to find information on predicted world energy supply and demand), major energy producer, studies by government think-tanks and research institutions (b) Where would you start to look in the data Look at key trends in the most important price drivers, which I personally believe are: Cost of production, competing fuel prices, government legislation, focus on main type of coal (c) Analyse and present results Present the most important drivers of the price of coal, evidence supporting this in pictorially accessible way, g, state assumptions made in predictions