Energy Exchange ElectronX Now Offers Hourly Hedging on ERCOT

ElectronX ("Precision Trading for Power Volatility") has announced a new product suite for US regulated power contracts.

They are providing hourly "bounded" futures and binary options on the Electric Reliability Council of Texas (ERCOT) markets, where the "bounding" refers to predefined floor and ceiling prices, limiting gains and losses (contract sizes are for 1MWh for specific hubs and specific hours).

The capping of payoff means there is no need for daily variation margin for the exchange to manage risk. 

These contracts enable smarter (potentially AI-oriented) management of intraday volatility as reported by The AI Journal.

Hybrid Battery Hydrogen Systems Proposed by Startup

A Swiss startup, Plan B Net Zero (founded 2023), has created a concept for BESS (battery energy storage systems) and stored hydrogen as a hybrid solution for grid balancing ("complementary building blocks"). 

This approach was outlined in the DACH Hydrogen symposium in Wiener Neustadt.

PBNZ said BESS could respond "within milliseconds" to imbalances, whereas hydrogen could inject energy (through fuel cells and turbines) over longer durations. 

Tjark Connor, battery systems expert at the startup, commented: "Our goal is an energy system that stabilises itself, digital, decentralized and decarbonized".

GRID Bill Passed to Expedite Dispatchable Generation

The American House of Representatives has passed a bill which could accelerate the progress of dispatchable power generation. The bill's sponsor, Rep. Troy Balderson, lamented "shovel-ready projects" were being delayed "while demand continues to climb". 

In the US, a bill must go through both both "chambers" (House and Senate, which together form the US Congress) and then be signed into law by the President who has the right to veto the bill as well.

The GRID Power Act gives FERC (Federal Energy Regulatory Commission) a total of 60 days to review proposals from RTOs and ISOs for projects to be pushed to the front of interconnection queues. 

The projects need to show how they would boost the reliability and resilience of the grid.

Interconnection queues are lists maintained by grid operators that track requests from power developers to connect new generation projects like wind turbines, solar farms, battery storage or dispatchable plants to the electricity grid. Projects in the interconnection queues may be withdrawn due to financing issues or delays in gaining regulatory approval.

For example, we may have a BESS project (Battery Energy Storage System) in Howard County Texas that wants to connect into the ERCOT system, with a capacity range of 200MW-300MW. Another example can be a small gas project that wants to connect into AESO (Alberta Electric System Operator) - Alberta is a province in Western Canada - supplying, say, 0-10 MW.

Monitoring the queues can give an indicator of future capacity. CAISO (California ISO, or California Independent System Operator, to give it its full title) queue reports can be found here. 

EPSA (the Electric Power Supply Association) has published an article explaining the GRID Act and how it contributes to reliability in a growing power system.

Gunvor Expands Precious Metals Business

Energy firm Gunvor Group, known especially for crude oil, refined products, natural gas and LNG trading, is diversifying its precious metal trading activities (derivatives) to physical trading, off the back of the rally in gold prices. 

Other active areas for the company include biofuels (specifically trading the feedstocks, such as corn or sugarcane, whose juice can be fermented to produce ethanol), power and emissions trading.

Commonwealth Fusion Systems Raises $863m

Commonwealth Fusion Systems (aka CFS, founded in 2018) has raised money from investors including Nvidia's NVentures venture capital unit to complete a demo system to lead to construction of its first commercial plant (400MW) in Virginia (1MW is equivalent to 1 million Watts).

All added, Commonwealth has raised around $3bn, which is one-third of all capital raised in the fusion industry. Google has already agreed to buy half the power output from the project, estimated to complete in the early 2030s.

New CEO Larry Culp Cuts GE's Dividend to 1 cent per share

Larry Culp cut GE's dividend to 1 cent per share from its quarterly level of 12c per share, saving GE around $3.9bn a year. Despite the loss of dividend shares rose.

Larry Culp is known for his "hands-on" approach, having cut his teeth from the age of 37 as CEO of Danaher. He has a BA from Washington College and an MBA from Harvard Business School. He is the first outsider to lead GE, ousting former incumbent John Flannery (who was a 30 year veteran of GE taking the reigns from Jeff Immelt). On Larry's appointment, shares surged 10%.

GE's debt, complexity of corporate structure and bad deals have contributed to its troubles. This has wiped off half a trillion dollars of market value over the past 18 years (its market value peaked in 2000). GE Power is one of its worst performing divisions reporting a 33% decline in Q3 sales. Renewable energy generation is taking away some of its business.

A bright spot in GE's business is GE Aviation, where sales have climbed 12%, in which the company builds jet and turboprop engines (engines that drive aircraft propellers). The division also has a Digital subdivision which offers products in the cloud aimed e.g. at aircraft maintenance records (AVRAD).

What is European and US Power Trading?

Barclay's Exit Is An Opportunity to Reflect

With Barclays announcing the closure of their European and US power trading operations earlier this year, we might reflect on what this business was actually about.

First Step to Understand Power Trading

To understand power trading it is important to understand spark spreads and dark spreads. To understand these spreads, you must think of the cost of power relative to the cost of the fuel required to generate that power. This is vital for a power plant operator to understand.

The Art of the Spark Spread (and what it means for the Spark Spread to be Positive)

Intuitively, the spark spread is the theoretical margin (crude measure of profitability) for a power plant. If the spark spread is positive, it means the price of power is greater than the cost of the fuel. Positive spark spreads means happy days for power plant operators!!

Within the US, spark spreads vary by geographical region and by season. New York City area tends to have relatively high spark spreads.

Measuring the Spark Spread

Spark spreads can be measure in $ per megawatt-hour. The calculation is as follows:

Spark spread ($/mwhr) = Power Price ($/mwhr) - [natgasprice ($/mmbtu) * heat rate (mmbtu/mwhr)].

The mmbtu's cancel out and you are left with $/mwhr.

What does the "heat rate" represent in the spark spread equation

The heat rate represents the efficiency of a generating unit. Market participants tend to use a benchmark heat rate for their calculations, e.g. for their daily prices EIA uses a value of 7,000 Btu/kWhr, representing a fairly efficient natural gas combined-cycle generator. The greater the efficiency of your generating unit, the greater spark spread you can realise as an electricity supplier.

Spark Spreads versus Crack Spreads in Petroleum Markets

Spark spreads tend to be more volatile than crack spreads, due to the volatility of wholesale electric power prices.

Spark Spread versus Dark Spread (Gas versus Coal)

Spark spread is power producer margin for gas-fired power station. Dark spread is the equivalent measure for coal-fired power stations.

Quark Spreads

An analogous measure for uranium-based power stations.

How do you trade the spark spread?

You can trade the spark spread by replicating using "paper" contracts, what the electric producer does. You do this by buying natural gas futures and selling electricity futures. You have then set up a "paper generator".