Quantifying Power Price Risk
Given our completed summer 2015 analysis and our last power discussions centered in the East, we head West in this example analysis and quantify the risk in Mid-Columbia (Mid-C) power hub on a high level. In order to make an effective decision, one requires knowing more than the fact that higher gas prices, higher load, and lower hydro generation produces higher power prices – but by knowing the extent and the probabilities this leads to effective decision making. Power Market Analysis (PMA) is built to deliver you this knowledge by using AuroraXMP by EPIS and following the fundamentals of power modeling as described in the whitepaper.
Current Mid-C Market
Examining the Mid-C On-Peak power curve, we see some very interesting results. The current forward curve for the summer rises from $22/MWh to $30/MWh by the end of summer. To many, these prices are likely extremely low. However, this is what you get in a hydro based environment with $3/mmbtu gas prices. Based on our preliminary analysis, it would indicate the prices can actually be much lower for many of the summer months. We ran over 60+ simulations for this summer.
Weather Analysis
To understand weather, we ran the last 11 year actual weather patterns and generated a new load forecast under those parameters. The weather changes in the region over the last 11 years are not that impactful in the summer. The largest standard deviation was in August at less than $2/MWh. This makes sense given the temperate summer weather in the Northwest.
Gas Price Analysis
To understand the impact on gas prices, we changed gas prices from $2.5/mmbtu to $6/mmbtu in 10 cent increments. The graph below displays the results in 50 cents increments. Holding all other variables constant, the changing gas price can have a standard deviation impact of around $8/MWh. The graph indicates the futures market is anticipating a higher heat rate than the model or the power trader’s sense higher gas prices by $0.5/mmbtu either through basis or Henry.
Hydro Analysis
By far, the biggest risk to Mid-C is the hydro conditions. We examined 70 years of hydro conditions and used the 1929 case for the low hydro year and the 1997 case for the high hydro year. The forward curve is likely concerned about a low hydro year given the issues from the past few years. However, the prices can fall significantly if a hydro year similar to 1997 was to occur.
Potential Actionable Items
The use of such analysis is only valuable given your circumstances. The results of this analysis requires understanding you particular situation. At All Energy Consulting, we will collaborate with you to help you make the most effective decision.
End User
If I were an end-user with a good or service which is dependent on energy cost, I would consider locking in September pricing. If usage is low in May and June, it would indicate not locking in power prices those months. Depending on usage and risk tolerance, July and August could be too risky to lock in.
Power Generator
The low gas prices are causing much pain for the bottom line. However if you haven’t hedged that risk already, it may be too late. The declining gas price risk, given the strip currently $3/mmbtu, has a diminishing impact on power price. A 50 cents move up has more impact than a 50 cent move downward. I would monitor the rainfall and start selling some positions in May-July. I would request an Off-Peak analysis to further inform my decision.
Load Serving Entity
Off peak analysis is needed. An overlay of the usage curve along with the on-off peak prices will confirm the need to lock in prices for August and September.
All Energy Consulting can take this type of risk analysis and work with you to apply it to your situation and produced a comprehensive no-regret strategy and implementation plan. We have all the information for your region and can supply you with and even more complete risk analysis. We cover the entire N. American market and produce On-peak and Off-peak prices for all the major hubs. Our near-term simulations can produce a three year projection. We also offer a long-term solution covering the next 30 years.
We add value in your energy buying needs by offering in-depth analysis in order to empower you and make you confident in your energy decisions. Please do consider All Energy Consulting, we help all types of clients from power generators to end-users better understand the energy markets.
Your Looking Out for Your Success Energy Analyst,
David
David K. Bellman
Founder/Principal
All Energy Consulting LLC- “Adding insights to the energy markets for your success.”
614-356-0484
[email protected]
@AECDKB
Summer 2015 Best Trade Update – Already?
The purpose of this release is to demonstrate the volatility and requirement to stay on top of the power market. PMA-NT is capable and designed to run daily. Our best trade for summer 2015 spread just moved from $-2/MWh to $1/MWh. The risk adjusted expectations of this curve was $2/MWh. There is still room for a 100% gain. The certainty is diminished somewhat as there are some simulations showing less than $1/MWh – however there were none at $-2/MWh which made this trade spread a screaming buy.
Not to fret the market has another opportunity. Based on last night’s run there is a shoulder month who offers this same opportunity. The current spread stands at $-4/MWh and the risk adjusted spread at north of $1/MWh. Historical analysis shows the spread to never be negative for the last 6 years. The average spread on a historical basis is over $6/MWh!
Do you want the list of potential summer trades that never get stale due to market changes? It is time you take a look at PMA-NT. We produce daily trade ideas with in-depth fundamental analysis. This is not a black box. We are not running stochastic and creating a mathematical soup of results. The realities of the world are examined in discrete runs. PMA-NT gives you control of weather, commodity prices, unit outages, etc…. We can quantify uncertainty allowing you to make effective decisions and trades.
Please call me if you are interested in receiving the list of our summer trade recommendations and the analysis that goes behind it. We are so confident in our modeling we offer very flexible terms that we get paid only if you get paid :
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Fixed charge with a money back guarantee on a winning portfolio of recommendations (winning portfolio > 0%).
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No money down a portion of earnings based on trade portfolio performance.
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Subscription to PMA-NT gives you the complete summer analysis and all the daily runs each and every day. Customization to create your own set of daily scenarios.
You won’t find a better package or deal when balancing the return expectations we can produce. Many of you want to do all this internally. I understand this and expect your team can. However, as I noted before it only gets better when we incorporate your knowledge. We are humble enough to understand we can’t cover everything, but we will continue to pursue that. This is what makes this an evolutionary service/ product. There is no sitting on our butts once we sign you up – we will continue to grow with you. You can have your very own unique PMA-NT experience. Your teams concepts and thoughts can be translated into PMA-NT. Your internal simulations can also be incorporated in our trade screener giving even a more robust answer. Finding the best power trades will only get better and easier when you and your team work with us.
If you want to show a successful power trading portfolio you need to reach out to us as soon as possible. We are here for your success – now and into the future.
Your Enthused Energy Analyst,
David
David K. Bellman
Founder/Principal
All Energy Consulting LLC- “Adding insights to the energy markets for your success.”
614-356-0484
[email protected]
@AECDKB
Best Power Trade Summer 2015 – 100% Gain High Probability
As noted in my recent article, demonstrating the great performance of PMA to be able to find winning power trades – 50 Percent Gain on Winter Trade! Another Successful Demonstration of PMA, I prefer to trade one season out excluding the shoulders. Unless something is a screaming buy or sell in the shoulders I typically avoid it given the limited load movements and unpredictable maintenance cycles.
Given our success in winter I wanted to get a jump start for summer so we have run over 60+ simulations for this summer. Including our base runs and following the same analytical approach which incorporates a historical analysis and our screening tools, we have identified some significant market dislocations from the forward curve to the realities of the market place.
Also noted in my previous article, I believe I have demonstrated and documented the efficacy of the modeling approach with 3 correct calls in a row (Summer, Winter 1, Winter 2) . Therefore, we will not likely give away trade ideas anymore. The return of one of our spread trade we have identified is priced to earn over 100%. This is no joke. I have all the analysis behind this trade and look forward to working with paying clients to capitalize on this trade. Power markets, given the collapse in trading and the complexity involved, do offer on occasions these types of trades. This June spread will be able to give you positive returns in less than 4 months.
Trading power if done right will bring positive results. The last two years the power trading markets failed as many traders failed to translate the low gas prices and what they meant to power prices. PMA-NT is proven to understand these commodity changes and what they mean for power. In addition, my trading recommendations stay away from these absolute issues and I focus on spreads and heat rates thereby mitigating some of the commodity risk.
PMA signals have recently changed from a sell mode for most of last year to now identifying some great buying opportunities. For many end-users if you are looking to hedge power now is the time and we can show you why and where. For several power generators my advice to you is ride it out enjoy the spot markets your downside risk is limited. This is location specific so you do need to call or email me to get the right information for your situation.
Please call me if you are interested in receiving the list of our summer trade recommendations and the analysis that goes behind it. We are so confident in our modeling we offer very flexible terms that we get paid only if you get paid (I got that from an infomercial):
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Fixed charge with a money back guarantee on a winning portfolio of recommendations (winning portfolio > 0%).
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No money down a portion of earnings based on trade portfolio performance.
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Subscription to PMA-NT gives you the complete summer analysis and all the daily runs each and every day. Customization to create your own set of daily scenarios.
This is extremely time-sensitive as the market will start correcting itself for these dislocations. If you want to show a successful power trading portfolio you need to reach out to me as soon as possible. We are here for your success – now and into the future.
Your Enthused Energy Analyst,
David
David K. Bellman
Founder/Principal
All Energy Consulting LLC- “Adding insights to the energy markets for your success.”
614-356-0484
[email protected]
@AECDKB
50 Percent Gain on Winter Trade! Another Successful Demonstration of PMA
Not to sound like an infomercial, but PMA-NT and the analytical power at All Energy Consulting can find winning trades for you. If I cannot persuade you to at least view PMA-NT with 3 correct calls in a row you are probably set in your ways and I wish you much trading success (Summer, Winter 1, Winter 2) . I did make two trade suggestions last call – Another 30% return in Month Time? – Next Trade De Jour. One of the trades did lose money, but only 4% as the heat rates in ERCOT-North held up in the financial markets. I believe the cash market still has a chance to show the trade was fundamentally sound. However, our other call buying the March AD-HUB minus NYJ On-peak spread is up over 50%. At the end of November, we noted the spread at $-23/MWh and we believed it should be closer to $-12/MWh. I suggest you close the position as the current spread ($-11.53/MWh – 1/12/15) is now smaller than the base run.
I do hope power traders are being successful as the power trading world has taken a huge hit over the last two years. The backbone of PMA-NT is designed for power trading. However the market has been somewhat skeptical about the analytical capabilities of PMA-NT. We presented these calls using the PMA-NT models along with our analytical capabilities and power market expertise to find these trade calls. Every day the default model runs over 5000 potential trade idea – as the model runs the entire N. America plus 5 scenarios for 3 years. We realize, with the power traders exiting the market, the liquidity has dropped. Therefore, our focus for trading is now no longer than 1 season out. The powerful trade screeners can quickly identify potential future dislocation – then we can process those trade ideas through our 60+ scenarios plus our historical screeners to quantify the risk reward profile of these trades. Adding your expertise in the market will only make these trades even better.
The recommended trades we discussed are focused in the region in which we have the most understanding. However, PMA-NT is designed for ultimate customization. We can incorporate your expertise along with the platform and our analytical capabilities to produce a selection of winning trades. If you haven’t been making 20-30+% every season, it is time to give PMA-NT a chance.
For those not trading, but owning an asset or an end-user buying power – PMA-NT can be customized for you so you can comprehend and quantify your market risk. Given our models are so accurate for trading, they can surely be used to assist you in understanding your weather risk to your natural gas price risk. PMA-NT can enable you to better plan and budget and potentially be incorporated into a hedging strategy. At AEC, we have the capability to review all your power contracting options and select or design the perfect contract, which balances your energy and budgeting concerns. Please do call and I will personally make sure we offer the insight to make you successful – 614-356-0484.
We are here for your success.
Your Energy Analyst Looking Out for You,
David
David K. Bellman
Founder/Principal
All Energy Consulting LLC- “Adding insights to the energy markets for your success.”
614-356-0484
[email protected]
@AECDKB
Whitepaper – Key Pieces to Modeling Power Effectively
As noted in the beginning of the year for 2015, we will work on producing a clear message to our readers, clients, and prospective clients about our commitments and value proposition. We are committed to adding insights to energy markets for your success – today and for years to come.
As part of the commitment, we begin with knowledge sharing by introducing a whitepaper on power modeling. Understanding the key pieces of modeling power will allow you to begin your endeavor in this challenging but very rewarding effort. This whitepaper will outline the areas of focus and also make a few high level points. We hope this will help you in your efforts, and as always, we hope you consider All Energy Consulting as an option for assisting in implementation or potentially using our PMA platform as an introduction into your power modeling efforts.
Please Click Here to Download the Whitepaper – Key Pieces to Modeling Power Effectively
AEC realizes you have many options in the markets when it comes to energy consultants. I want to state now – no other consulting company will be more committed to sharing knowledge – not just information – for your success than All Energy Consulting. We are not hesitant to empower you and your team to the point where our consulting role may be limited in the future – we treat this as a success.
Your Very Willing to Share Energy Analyst,
David
David K. Bellman
Founder/Principal
All Energy Consulting LLC- “Adding insights to the energy markets for your success.”
614-356-0484
[email protected]
@AECDKB
Year of Model Building 2014
2014 Modeling Efforts
At All Energy Consulting, we specialize in modeling the energy markets. To give you a sense of our capabilities, below are the list of models built in 2014.
Reviewing the list, it reminds me of the saying :
“People who love what they do wear themselves down doing it, they even forget to wash or eat….When they’re really possessed by what they do, they’d rather stop eating and sleeping than give up practicing their arts.” Marcus Aurelius, Meditations
Please do consider All Energy Consulting for your energy modeling needs. I truly enjoy what I do and it will show in my work and commitment to you – Thanks for 2014.
David
[email protected]
614-356-0484
Oil & Gas
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Built a USGC refinery model in various configurations – Hydroskimming, Cracking, and Coking
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Discounted Cash Flow Model for Refinery Acquisition and Refurbishment
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USGC and Caribbean petroleum pricing model
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Modeled the US Natural Gas Deliveries to Electric Power Consumers by State
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Modeled and Calculated the discount value for Eagle Ford Condensate
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Built World Supply/Demand Balance Model for Crude Oil and Petroleum Products
Power
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Assisted Platte River Power Authority (PRPA) in deployment (setup, build, and operate) of a power model used for their Integrated Resource Plan
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Several Discounted Cash Flow Model for Power Generation Asset – 800 MW CC to 1MW Reciprocating Engine including the associated power modeling work
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Worked with the University of Texas Center for Energy Economic on modeling and publishing papers regarding ERCOT
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Modeled EPA Clean Power Plan and published paper in Fortnightly
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Modeled and produced a risk analysis for a set of generating assets
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Long-term Power Modeling along with integrating GCPM gas pipeline model
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Built and Operate Power Market Analysis (PMA) Platform – includes integrated trade screeners to integrated natural gas storage models.
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Built an interactive load model for 118 load zones representing N. America
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Built a coal pricing model to deliver and price coal to all 1000+ coal units in N. America
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Discounted Cash Flow Model for an Integrated Desalination Plant with Associated Power Generation and Recycle Facility for Waste Water from Fracking
Models are only as good as the inputs and the ability to decipher the outputs to business solutions. More information on modeling and other services can be found on our website.
