Energy Market Fundamentals Flashcards
7 cards from real CEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Energy Market Fundamentals flashcards as text
A buyer concerned about rising energy prices decides to purchase call options on natural gas futures. This strategy is best described as:
Answer: Hedging to cap upside price exposure while retaining downside benefit
Buying call options grants the right to purchase gas at the strike price, capping cost exposure if prices rise while allowing the buyer to benefit if prices fall.
Which factor most directly causes 'congestion' on an electricity transmission system?
Answer: Physical limits on transmission lines that prevent all desired power flows
Congestion occurs when desired power schedules exceed transmission line thermal, voltage, or stability limits, creating price differences between grid locations.
What is the typical settlement mechanism for a financial electricity swap?
Answer: Cash payment based on the difference between the fixed contract price and a floating index
Financial swaps settle in cash: if the index exceeds the fixed price the seller pays the buyer, and vice versa — no physical commodity changes hands.
Under a 'block and index' electricity procurement strategy, a portion of load is fixed-price and the remainder is:
Answer: Settled at real-time or day-ahead spot prices
Block and index combines a fixed-price 'block' hedge with spot-market exposure for the unhedged volume, blending price certainty with market participation.
What does 'uplift' or 'make-whole' payments represent in wholesale electricity markets?
Answer: Compensation paid to generators whose dispatch costs exceed market clearing revenues
When a generator is dispatched for reliability but the clearing price doesn't cover its costs, the ISO makes it whole through uplift charges socialized across market participants.
A 'tolling agreement' in power generation gives the buyer the right to:
Answer: Supply fuel to a generator and receive the resulting electricity output
Under a tolling agreement, the toller provides fuel and receives power output, essentially renting the plant's conversion capability without owning it.
Which of the following metrics best measures the cost competitiveness of a new power generation project on a lifecycle basis?
Answer: Levelized Cost of Energy (LCOE)
LCOE divides total lifecycle costs (capital, O&M, fuel) by total lifetime energy output, enabling apples-to-apples comparison across different generation technologies.