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
What does the term 'basis' refer to in energy markets?
Answer: The price difference between a regional location and a benchmark hub
Basis is the price differential between a specific delivery point and a liquid benchmark hub such as Henry Hub for natural gas.
Which of the following best describes a 'heat rate' in the context of power generation?
Answer: The BTUs of fuel required to produce one kilowatt-hour of electricity
Heat rate measures generator efficiency as BTUs of input fuel needed per kWh of electrical output — lower heat rates indicate more efficient plants.
What is the primary function of an Independent System Operator (ISO)?
Answer: To manage the transmission grid and wholesale electricity markets in a region
An ISO/RTO coordinates the operation of the transmission grid, dispatches generators, and administers wholesale energy markets to ensure reliability.
A 'swing' contract in natural gas procurement allows the buyer to:
Answer: Take variable volumes within a stated minimum and maximum range
Swing contracts give buyers flexibility to take volumes anywhere between a floor and ceiling, accommodating demand uncertainty.
In electricity markets, what is meant by 'locational marginal pricing' (LMP)?
Answer: The cost of serving the next megawatt of load at a specific grid location, reflecting energy, congestion, and losses
LMP decomposes the nodal price into energy, congestion, and marginal loss components, reflecting actual grid conditions at each location.
Which market participant typically sets the clearing price in a wholesale electricity energy market?
Answer: The most expensive generator needed to meet demand (the marginal unit)
Wholesale markets use a single-clearing-price mechanism where all accepted bids are paid the price of the last (most expensive) unit committed.
What does the 'load factor' of an electricity customer indicate?
Answer: The ratio of average demand to peak demand over a billing period
Load factor (average demand ÷ peak demand) reveals how consistently a customer uses electricity — high load factors generally yield better supply rates.