Sep 15, 2022Liked by The Last Bear Standing


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Aug 29, 2022Liked by The Last Bear Standing

I understand the impact on the other form of energy generators but can you explain why windfarms were so badly impacted? Could they not declare force majeure if their equipment froze over?

"An entire industry of privately owned windfarms was thrown into lawsuits, restructuring or bankruptcy as their offtake agreements turned upside down."

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Aug 29, 2022·edited Aug 29, 2022Author

Nearly all windfarms in the state have a long-term fixed price offtake agreement with a bank, with fixed volume obligations. If the windfarm produces less than those obligations it must purchase the shortfall in the open market. Ironically, these agreements were required to finance the projects intended to provide price stability over the course of the agreement.

Wind farms in general were producing much less than their volume obligations during the storm which meant they had to buy power in the market to cover. The cost of power in just several days equaled years worth of revenue.

Windfarms invoked force majeure in lawsuits in Texas and New York. Some are still in litigation while most have settled out of court between the various investors and counterparties.

Here are couple of the ones that went to court:




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Aug 29, 2022Liked by The Last Bear Standing

Wow, crazy stuff. Thanks for the explanation and the really interesting article.


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Sep 3, 2022·edited Sep 3, 2022

Hey Mr. Bear, can you please help me understand footnote number 5?

"Financially, forward market prices are not a <prediction> of where prices may be a year from now, but are used to determined risk, exposure and collateral needs today"

First of all, just so I make sure I understand forwards market prices... My understanding is that 1-year ahead baseload prices are reflective of the expected price that one would need to pay for a certain quantity of energy sold/bought, measured in MWh. If I am a market participant that actually needs to deliver energy to the grid, I use those in order to protect my future interests. That is my intention at least, and if I play it right I manage that - if I play it wrong, that can lead to losses for me as a market participant.

But doesn't that mean that forward futures (such as 1-year ahead baseload prices) act as a form of gravity for today's power prices, pulling them in that direction as time goes by?

Any link/material that you might have in mind which could help me understand the implicit dynamic between forward future pricing and current spot market pricing would be greatly appreciated.

Thanks a ton in advance!

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Futures pricing are forward contracts happening today to deliver power a year from now. So its not really a predication - it is the current market of buyers and sellers for power that will be delivered next year.

They don't necessarily need to draw current prices towards that level, although in general, current prices are probably a good anchor for where people are willing to transact for power a year from now.

Futures can be a hedge, but they may also be related to an long-term power purchase agreement (PPA). Importantly, they are used to calculate mark-to-market positions between power producers, energy companies, and market intermediaries like banks. So, if a power plant has an obligation to provide power a year from now to the energy trading desk of bank, and futures prices go to the moon, then the bank will demand that the producer post margin that shows they can cover the cost of that power they are required to provide (even if it is expected that they will produce that power from their facilities).

Banks require this because they don't want to get stuck in the middle in a situation where a power plant can't produce (perhaps because they have no gas), but the bank as an intermediary still has the downstream obligation. In this case, the bank could be on the hook to provide power (or be financially liable for the cost of that power).

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Thanks for the great explanations (as always) !! Mentioning examples helps immensely.

I have jolted down some few unstructured thoughts just below.

Is that then also the implicit dynamic for other futures markets for other commodities, such as Oil, Natural Gas or Gold?

Some structural differences that I can think of:

- With regards to Oil, I would expect futures to be less volatile compared to the electricity market's futures, due to the ability to store and transport it in different ways.

- Natural Gas must be inherently more volatile than oil due to the limits in transportation. This is somewhat analogous to bottlenecks that exist in Europe's power grid, which are exacerbated if renewable energy penetration increases faster than our ability to reinforce the electric power grid. Grids are generally designed using N-1 criteria (i.e. parts of the grid should still be able to function if any of the N components of it are "lost" due to some failure). But the N-1 criteria have safety and stability in mind, not market prices. I am thinking that to be able to guarantee "smoother" future curves additional interconnection would be required.

- Gold has no intrinsic value. You can burn oil and natural gas to produce work, but the value of gold is primarily built on trust that there will always be demand for it due to its historical use as a store of value and/or means of transaction and its chemically driven ability to remain unchanged through time. So what is it that drives the behaviour of gold futures curves shape and volatility?

-- Gold is hard to extract and requires a lot of energy - so if forward futures for

baseload power in a country where gold extraction takes place point to higher future

electricity prices, would that also pull up the gold futures?

-- Or are gold futures mainly driven by inflation expectations due to its perceived

ability to preserve value across time?

-- There are other events, such as for example a mine ceasing operations due to an

accident or due to a strike, or a political regime change in a gold extracting country

that could affect its supply to the world. Geographical production of gold seems

quite diverse so could that be a driver based on your intuition/experience?

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How come no fixed power tariffs for consumers ?

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