How is Enwex calculated?
Day ahead settlement data of Enwex indices are calculated using the operational run of European weather model ECMWF. Its gridpoint forecasts in 0.25° spatial resolution and hourly timesteps are basis for the calculation. Formula needed for translation into wind or solar power utilization is published to grant full transparency.
Enwex indices are the best compromise between simplicity for markets and full representation of the underlying weather parameter. The result is global scalability as the methodology is easy applicable and precisely meets weather driven volatility per country.
Enwex indices are calculated as nationwide means and provide a day ahead settlement as known from power and gas markets. Hourly granularity of the indices allows the trading of multiple of hours contracts, from days to calendar years.
These characteristics of Enwex are just some of the lessons learned from the limited acceptance of the asset class weather derivatives so far.
Driven by the very high dynamics of renewable newbuild, the spatial weightings per country and parameter are yearly reviewed according to latest publications of installed capacity. A full documentation also on the update procedure can be found here.
How to calculate Enwex temperature
The temperature in °C transmits to a price in Euro, e.g. 10,25°C corresponds to 10,25€. The prices are calculated out of hourly grid point forecasts for day ahead (local time) 2m temperature by ECMWF weather model.
A nation or market is represented by reference locations, each nearest to the middle of a province. These locations are weighted by the population share per province. As a result, the Enwex methodology provides a very easy approach to hedge temperature driven gas demand volatility.
How to calculate Enwex wind
Prices for wind are defined as a percentage value of utilized installed capacity for a country, e.g. 30,00% translates into 30,00€.
This transformation is similar to other wind indices in the past, but Enwex massively simplified the calculation methodology with still very similar accuracy to get rid of the „black box“ impression many wind indices had so far.
Just one formula is applied to the same representative grid points as for temperature and solar, the middle of each province. So windspeed forecasts in 100m height are translated into utilization figures. As a result, the Enwex wind is meeting a very high correlation to the published wind power generation, e.g. 97,6% for 2022 published windpower in Germany.
So the Enwex method allows weather hedging without black boxes with the chance for traders to calculate actual index values also in their own spreadsheets.
How to calculate Enwex solar
The Enwex solar index is taking the most profit out of the hourly granularity due to its typical and strong intraday volatility.
The spatial weighting of Enwex solar follows the same rules as for Enwex temperature and wind, the weather model parameter used for solar is total radiation. Differing angles and orientations of solar plants are not needed, because this nationwide index is focusing on the volatility in average utilization driven by weather, not per site. Nevertheless Enwex solar reaches very low RMSE values and can easily be used to hedge PPAs or to trade the solar market values.
