Power Markets Notes
Power
Power is an interesting commodity and unique on it’s own relative to other commodities. Trafigura’s Commodities Trading Demystified says commodity trading is about shifting commodities in time, space and form. In power, there is no form since electrons are electrons (well, ignoring fuel to power), there is some space (well assuming it flows according to a fixed grid topology/physical constraints) and almost no time (except storage). It is a commodity where microeconomics and auction theory dominates.
Key Intuitions
- Power is either PV (photovoltaic), chemical (battery) or spinning (turbine or async).
- Power is priced by the contribution to grid reliability over a time interval.
- The clearing auction is designed to quantify that value in monetary terms - load/demand sets that value.
- Production is adjusted by tweaking various control systems on generators (actuators, valves, absorbing rods, bidirectional inverters) to maximize financial exposure to price.
- Load is adjusted by turning on more loads either in the time series or cross-section.
Trading
- Primary participants have ownership of direct gen (generators) and load (retailers). They earn revenue via left skewed (price/cash flow stability) or right-skewed (ancillary services/balancing/peaking) strategies.
- Secondary participants have no ownership of gen or load. Physical power trading is just cash flow swapping with a primary counterparty.
- Providing stable revenue/cost streams lets the market (both primary gen/load) develop - e.g project finance.
Market Alphas
These alphas concern themself more with market participant behavior and (micro)economics.
- Geography - Understanding geography of various country grids.
- Portfolio/Deals - Different portfolios and deals (PPA/offtakes/etc.)
- Auctions - Understanding auction formats, clearing mechanisms.
- Supply Side - Understanding power plant microeconomics & bidding behavior in auction markets.
- Load Side - Understanding the breakdown of load in terms of consumer behavior
Technical Alphas
These alphas are related to basic understanding of introductory EE concepts at a qualitative level aka a ‘YouTube’ level. Some good channels: Prof Mad, Electrician U
- Electron Intuition - Drude model, water model
- Elementary circuits & Loads - Resistors, capacitors, inductors, parallel/series.
- Load Technicals - Load adjustment (cross section, time series), load types
- Basic circuits - Inverters, rectifiers
- AC vs DC - Impedance, phasors, projection, power triangle, 3P AC, VAR
- Circuit Laws - KVL/KCL/Ohm/Power
- Flows Intuition - PTDF/linearization/superposition theorem