AEP Energy Services, the European wholesale energy marketing and trading subsidiary of American Electric Power, has received internal approval to start trading weather derivatives in Europe and plans to pull the trigger on its first trades in the coming months. Thor Lien, managing director in Oslo, said AEP will concentrate on structured products, such as precipitation index swaps for hydroelectric power plants. He added the energy company will also structure products linked to temperature and, if there is demand, wind speed.
AEP hired 35 employees, including Lien, from Enron Nordic Energy in January and took over its offices in Oslo, Norway and Sweden. AEP already offers weather derivatives in the U.S. from its office in Columbus, Ohio.
Lien said the firm will focus on risk management products for energy companies because that is where it has expertise. However, Lien said it will also market to other industries and is open to offering structured products to investors. Lien said it will hedge most of its risk through standard derivatives contracts.
