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Forward Price Curve
1. Derivatives primer - Determining a Forward Price for a storable commodity - Natural Gas, Crude Oil, LNG. Electricity?
A Quantitative approach for Petrobras (Brazil - Emerging Markets) in Endur, Allegro, Sungard Energy, Triple Point and
Energy Trading Risk Management Systems
Forward Price at time T Forward date
Spot Price at time t Spot date
Risk free Interest Rate IR
Cost of Carry Storable commodity only
Convenience Yield Price of fuel/Electricty price = Spark Spread
Forward date Time in the future (in weeks)
Spot date Current, not averaging prices
Electricity is not storable. Electricty generated in one time period cannot carry forward to the next. Future Spot prices do
not correlate to current Spot prices as specific influences will vary and differ, so cost of carry is not available for Electricity.
c. 2009 Phil Green, Derivatives Trading Desk®™