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Fortnightly Magazine - August 2006

Living on the Edge

Putting natural-gas price volatility into hurricane-season perspective.

The natural-gas and oil price run-up since hurricanes Katrina and Rita has subsided somewhat following a warmer than usual winter, record natural-gas storage levels, and successful conservation instituted by many gas and electric utilities in recent months. However, new sources of supply concern—such as occurred in Europe with accusations of gas-supply withholding between former Cold War adversaries—have rekindled calls for greater diversity of supply across Europe.

Byline: 

Gary L. Hunt and George Given

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A New England Capacity Market That Works

Two authors beg to differ with Goldman Sachs’ Larry Kellerman on what needs mending in the Northeast.

Although much work remains before all its benefits will be realized, the Forward Capacity Market satisfies the criteria for a capacity system that works, while avoiding the need for the centralized planning and control that Larry Kellerman appears to advocate in “Mending Our Broken Capacity Markets.”

Byline: 

Randall Speck Esq. and Dr. Miles Bidwell

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Green Options On the Future

Call options can be used as a financing tool for fixed-cost renewable energy technologies.

An unexploited benefit of renewable energy is the predictability of operating costs over the long term. A renewables operator knows today how much it will cost to produce energy decades in the future. This future price certainty has a value that can be transferred to electricity buyers or other market participants. How much value can a renewable-plant operator capture from selling long-term call options, given several future price and volatility scenarios? What will be the cost and benefit to an individual buyer or seller?

Byline: 

Daniel Simon

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