Power & Renewables

Electricity cannot be stored economically at scale, so it has to be balanced in real time — generation must equal demand every second. That single fact reshapes the risk. Price swings hourly with demand, weather and the generation mix, and the exposures that matter are shape (matching the hourly profile), volume (uncertain quantity) and locational basis (congestion between nodes) — not just the average price. Power Purchase Agreements and shaped hedges exist precisely to manage risks other commodities never face.

How the market works

Because power is not storable, it trades across a layered set of markets that tighten as delivery approaches. Longer-dated futures and forwards cover years, quarters and months at a fixed price; these settle against day-ahead auctions that price each hour of the following day; and intraday trading (down to 15-minute blocks) balances the system in real time. To ensure enough generation is available years ahead, many systems run capacity markets that procure megawatts of firm capacity with three-to-four-year lead times. Power purchase agreements (PPAs) let generators and large buyers lock in price over the long term — important as wind and solar add intermittency, and with it shape (when power is produced) and volume risk.

Major trade flows

Electricity is largely a regional commodity — it flows within interconnected grids and market zones (e.g. the US ISOs/RTOs, and European coupled day-ahead markets) rather than trading globally like oil or LNG. The defining shift is the rising share of variable renewables, which the IEA notes is forcing market designs to evolve: as more wind and solar enter, wholesale prices become more volatile and long-term markets face persistent gaps in liquidity, making PPAs and capacity mechanisms increasingly central to managing risk and financing new build.