Figure 8.11 shows Vattenfall’s business concept and the role of trading in the Vattenfall value chain. As can be seen, the value chain covers generation of energy, trading, transmission, distribution, and sales. From the perspective of its place in the Vattenfall organisation, trading is a key centralised function, a fulcrum between supply and demand. However, the functionality of trading processes is virtual and reaches markets far away from the cabling and pipes carrying the traded commodity. The total traded volumes are much larger than the volume of energy generation, transmission, and distribution within the value chain.
Vattenfall’s vision for financial trading is to be the risk management centre for the organisation. In this context, risk refers to financial risk. The mission of the financial trading function is to translate trading competence into additional value for Vattenfall’s customers. Vattenfall’s customers are the boards supplying power-generated services such as electricity.
By far the largest traded commodity by volume is electricity. Trading is not limited to hydroelectrical commodities, hard coal, gas, oil, and other traditional fuel sources. An important part of the trading is related to emissions into the environment (measured as CO2 greenhouse equivalents). Different forms of national and international regulations such as the Kyoto Protocols and the equivalent EU regulations need also to be considered. Other factors to be considered are international transfer pricing and exchange rate fluctuations, as errors in these areas can be costly.