What do the first months of trading say about the spread between spot markets and futures prices?
ust over nine months ago the New York Mercantile
Exchange opened trading in the first-ever electricity futures contracts. As occurred
previously in oil and gas, futures trading in electricity
promises to play a central role in
commodity markets (em markets that are gradually evolving as competitive.
Electricity futures also provide a valuable tool for managers at utilities or other power producers. Futures convey critical information about the value of power that buyers and seller can exploit to raise profits and boost returns for shareholders. That being said, the trading of futures is not necessarily a prerequisite for understanding the market or the signals it sends about the value of power. Futures prices, however, should command attention (em not only from the operations and marketing staff at the major utilities, but also from electricity consumers.
It is the price of futures contracts that offers useful information on such decisions as when to buy or sell, and on what terms.
Timing Power Supply Decisions
The price for power varies by month of delivery. In a competitive market, the price differential between months will fluctuate with current supply and demand conditions, sometimes dramatically. Knowing the premium
currently paid for well-timed capacity provides an important key to maximizing profit. How high is that premium now?