Placing energy business in the risk-return portfolio matrix of MOL Group

As a result of looking for growth opportunities and possibilities to enter new business areas, MOL decided to build two 800-800 MW gas-firing power plants in cooperation with CEZ at Danube and Slovnaft refineries. Entering power generation business means new challenges and changes in the risk profile of MOL Group.

In order to analyze the impact of this, we have established four scenarios, identified the most relevant risk drivers and their impacts on MOL Group profitability using the Enterprise Risk Management method (ERM) applied by MOL. According to the conducted analysis, the most significant risk factors – which are affecting the new business unit - are the following: gas and electricity price evolution, CO2 price, exchange rates and the merit order position of the power plants. In case the applied CCGT technology is the price setter technology on the market in the long term, both the Group’s return and risk will likely increase. Since the incremental return exceeds the additional risk, entering power business can be accepted on risk/return basis.
In our study we identified the most important risk factors and some possibilities for mitigation. In case MOL management considers these results as main risk drivers, we believe that the rise in external exposure of MOL Group could be reduced in a proactive way.

László Keresztury, Bence Körmendi, Attila Steiner, Gergely Szabó