Price Arbitrage | Asset Optimization | Ancillary Services

 

A CAES plant's ability to store energy makes it ideally suited for price arbitrage and hedging activities in the electricity trading markets. A CAES plant can arbitrage a variety of different types of pricing spreads, based on time of day, market, fuel, or location.

Time of Day
Off-peak prices are consistently lower than prices during peak periods, so CAES plants are able to "buy low and sell high." Though recent U.S. on-peak pricing has not matched the highs of the late 1990's (see the following charts), there can be wide spreads between on and off-peak prices. During extreme on-peak price spikes, when prices soared to several hundred dollars per MWh, off-peak prices remained relatively consistent, resulting in even wider on-peak/off-peak spreads than normal.

Price volatility will continue to be a fundamental characteristic of the evolving electricity markets. By being able to store electricity when prices are low and deliver it when prices are high, a CAES plant can serve as a tool for electricity traders, as well as a price risk hedge for producers and consumers of power.

Click on the charts to view the larger versions.

Northeastern
Northeastern

Midwestern
Midwestern

Western
Western

Southern
Southern

Market
Though we frequently talk about the "electricity market," there are in fact many different markets for many different products. A CAES plant can store electricity from one market and sell into another, effectively arbitraging the respective markets. While the most obvious application might be a plant interconnected into two market regions, numerous intra-regional opportunities also exist.

Fuel Source
The economics and operating characteristics of generation plants vary according to their fuel source, and CAES provides an opportunity to arbitrage between fuel sources. For example, a plant can store power produced when low cost fuels are on the margin, and then produce electricity when relatively high heat rate gas fired generation is on the margin.

Location
Location arbitrage can provide another trading opportunity for CAES plants. A plant can transmit power across a potential capacity constraint during off-peak periods for regeneration later under constrained conditions. Since power on the "right" side of the constraint would sell for a premium, the CAES plant can arbitrage the differential between power prices around the constraint.

Top of Page