Finding Power Trades Arbitrages

Markets are only efficient in their ability to process and understand the markets.   Power markets are likely one of the least efficient markets moving a month out largely due to its multi-variable dependency on multiple commodities and its lack of storage capabilities.   Given this, there are many trading opportunities.   PMA has incorporated trade screening capabilities to help identify arbitrages in the market.  Three screeners were developed and can be customized – power price, power heat rates, and power spreads.

The power price screener searches through all the curves produced by the PMA process in all three cases – high, low, and base.   The criteria for developing the high, low, and base can be customized.   The screener compares each case to the forward curve.  In the current default, the screener is finding trade opportunities where all three cases sit on one side of the forward curve.  If it is above the forward curve it notes it as a BUY and calculates the maximum gain and minimum gain.  If it is below it notes it as a SELL and calculates the maximum gain and minimum gain.  Each morning you can come into PMA and process this.  It takes less than a second to produce an interactive table where you can easily sort and search.   As an example, we have a screenshot below:

Power Price Trade Screener 

(Click Image to Enlarge)

In the above screenshot the model has screened through 1,620 potential cases.   In less than a second, 214 trades identified and filtered to show only the 2014 trades.   The trades are sorted on min. gain which essentially is identifying the best opportunities in the market with limiting risk.  The model is favoring selling based on the filter criteria which is a reasonable expectation given the market premiums are rather large due to the strong winter experience.

The next trade screener is the Heat Rate Screener.  In this case, you have to pick the market and the gas basis you would like to use.

Heat Rate Trade Screener

(Click Image to Enlarge)

The above screenshot screened the PJM-West/ M3 heat rate curve.   Only 8 trades passed our criteria.

The final screener we developed is the spread screener.  In this case, you pick the two markets you would like to examine.

In the above screenshot, we show the 17 trades for the PJM-West minus AD-Hub that passed the criteria.   One of my personal favorite trade is showing up here – PJM-West-AD-Hub Jan Buy with a potential gain of $7.74/MWh and an expected min of $1.33/MWh.  If the market gets colder you can probably anticipate higher prices in the west relative to AD. I suspect coal units this winter will perform much better than last winter per lesson learned.   Likewise, if it gets warmer we can expect AD to fall much quicker with gas basis dropping more significantly in the region to compete with the coal units.

All these screeners and also the criteria for high, low, and base runs can be customized for you.

Please contact me to schedule an online demo meeting [email protected] or 614-356-0484

We are focused not only on supplying answers, but empowering you to find answers.

Your Inspired Energy Consultant,

David