The future power market is different than the real-time markets.\u00a0 Many are more knowledgeable in stock markets than the futures power market.\u00a0 The stock market and futures power markets are more similar than the real time power market. \u00a0\u00a0If there are many buyers in a particular stock, we can see that the price of the stock can go beyond historical or sector weighted metrics (Price to earning, book value, etc..).\u00a0\u00a0 In the power markets, one could use metrics such as cost of production to marginal unit economics to see power prices are extending beyond reality.\u00a0 A simulation through a dispatch model such as the one used in PMA<\/a> (AuroraXMP by EPIS) can quantify this.\u00a0\u00a0 At some point, a stock price can be considered over or under value.\u00a0\u00a0 We can do the same thing for power in the futures power markets.<\/p>\n The futures power price can be influenced beyond the fundamentals, no different than a stock price.\u00a0\u00a0 If the market observes a significant volume of marketers locking in price because they have \u201csold\u201d the concept to a large amount of buyers, the future price of power can be over priced relative to the fundamentals and potential risk.\u00a0\u00a0 There is also irrational exuberance in power such as in stocks.\u00a0 These moments are seen when a particular event happens. For example, both the polar vortex and Hurricane Katrina occurred in the recent past causing a large amount of locking in power months after the fact \u2013 even though the facts show the odds of such event are limited.<\/p>\n This locking in power then turns into an insurance scheme.\u00a0 As a recent insurance commercial discussed, you don\u2019t want to be holding a policy to protect a Ferrari when all you have is an old clunker.\u00a0 However your marketer and energy management companies typically do not have the necessary tools to be able to quantify the risk nor the incentive to inform you.\u00a0\u00a0 It takes a decade long experience to operate and manage such power models, as noted in my whitepaper Power Modeling<\/a>.<\/p>\n The PMA platform<\/a> is built for power trading, but can be simplified to be able to quantify risk and measure the extent of irrational exuberance in the future power markets.\u00a0\u00a0 It is very easy to make the claim gas prices and weather impact power prices.\u00a0\u00a0 The real value comes from answering by how much.\u00a0\u00a0 Every region is different and every month is different.\u00a0 Below are some graphs of this July risk factors across the US.<\/p>\n
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