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Fortnightly Magazine - August 2006

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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The Changing Face Of Credit-Risk IT

A system that measures, monitors, and manages is no longer a Wall Street extravagance, but an industry essential.

Fifteen years ago, you couldn’t fill a small room with energy CEOs interested in discussing how credit risk affects their companies’ bottom lines. But a recent series of contract defaults, bankruptcies, Sarbanes-Oxley controls, and merger-and-acquisition activity has placed credit-risk management squarely on the industry’s radar. Today, it’s clear that an integrated risk system that measures, monitors, and manages credit-related risk is no longer a Wall Street extravagance, but rather an industry essential.

Byline: 

Marty Makulski

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One RTO, Two Systems

By trying to placate regulated states—letting utilities “opt out” from its capacity market—PJM finds its RPM idea under fire.

While the PJM Interconnection has made no major changes to its prototype capacity market since it proposed the idea a year ago in August, and though it has won a tacit OK from federal regulators for many of the plan’s key elements, don’t expect to see a slam dunk when the time comes for a final review of the controversial idea, known as the Reliability Pricing Model.

Byline: 

Bruce W. Radford

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