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Apr
14
awarded  Supporter
Apr
1
answered Options with a stochastic strike
Mar
5
answered Delta Neutral / Gamma Neutral Positions
Jul
25
comment How to calculate return rates with negative prices?
@MattWolf:One does not simply exit the circuit.It's real energy that has to be dumped somewhere.Suppose you have full-throttled car. You don't want it to go anywhere, so you lift it off the road (disconnected demand),but you also don't want engine to reach high rpm.You must somehow consume the excess power. You can for example brake the wheels. Then you are dumping the power in the form of heat.Or use it for pumping water to reservoir,or something else.That's exactly how the balancing services work. What we really need is good batteries.Good storage results in smoother prices (see gas market).
Jul
25
comment How to calculate return rates with negative prices?
@MattWolf: Some plants can do this, like gas-fired, which are basically aircraft jet engines. Just control the fuel valve. But they have quite expensive fuel. If you take coal plants: The beast eats several trains full of coal each day. Huge fire that you must feed/extinguish. It takes several hours for coal plant to ramp up/down. Same for nuclear power. They are designed for continuous operation. Of course, everything has safe emergency shutdown, but then you can throw most stressed parts away. It's the matter of wear of pipes, shafts, boilers, that suffer from changes in temperature/load.
Jul
25
comment How to calculate return rates with negative prices?
... On the other hand, you can see that some suppliers are willing to supply at whatever cost, just because when you have your powerplant running, you cannot fully stop it in the matter of few minutes. Therefore you simply must sell you electricity, and someone must consume it. Sometimes (usually on holiday nights) this produces negative price spikes. As Joao already linked: eex.com/en/Market%20Data/Trading%20Data/Power/…
Jul
25
comment How to calculate return rates with negative prices?
... To ensure this balance, electricity is traded hourly in auctions, where the exchange tries to exactly match supply to demand based on the bids and offers of participants. It literally intersects supply and demand curves (see apxgroup.com/wp-content/uploads/marketdata/powernl/public/… ). Horizontal axis is quantity, vertical is price. Red is supply, blue is demand. You can see, that some buyers are willing to buy at whatever cost. These are utilities, that cannot adjust their consumption to price. This sometimes produces huge positive price spikes...
Jul
25
comment How to calculate return rates with negative prices?
... The shaft spinning is directly connected to the power plant turbines, so if there is more producers than consumers, the shaft will start spinning more rapidly. If there is more consumers than producers, the shaft spinning will slow down. This unbalance can literally cause power plant turbines to slow down/halt, since they cannot overcome the load. And of course, different shaft spinning frequencies will break connected devices. Therefore, huge effort is devoted to all kinds of balancing mechanisms, that will keep the shaft spinning at the same rate all the time ...
Jul
25
comment How to calculate return rates with negative prices?
@MattWolf: You can very accurately imagine electricity network (alternating current) as a huge interconnected spinning shaft. Some are actively spinning it, some are just connected and use its spin to power their devices. The shaft turns 50 times per second precisely (60 in US), and all devices are adapted to this frequency and will not function properly if the frequency changes significantly. This analogy is very accurate also in the sense, that there is no clear "power flow". Averyone is just connected to common "shaft" ...
Jul
23
answered How to calculate return rates with negative prices?
Jul
23
comment How to calculate return rates with negative prices?
Matt Wolf: Negative prices (or huge positive spikes) are regularly happening in electricity spot markets since electricity is almost non-storable and production must equal consumptions at all times, otherwise the power grid would become unstable and lots of bad things would happen. Most power plants cannot regulate their output fast enough in non-emergency situations. The electricity grid is full of various supplementary power-balancing services reacting to changes in supply/demand in matter of hours and even minutes to seconds.
Jun
24
awarded  Teacher
Jun
24
answered Why Drifts are not in the Black Scholes Formula
Oct
17
awarded  Student
Oct
17
asked How to transform process to risk-neutral measure for Monte Carlo option pricing?