Wind Power Futures, First Renewable Energy Futures, Scheduled to Start Trading This Friday (Part 1 of 3)
Posted: August 22, 2007
How fast will the wind blow next month in and around Amarillo and Abilene, Texas? How about in and around Syracuse and Utica, New York?
Welcome to the new world of energy futures trading, a “green” world where investors and speculators will make and lose money based on whether wind speeds in specified regions of the United States turn out to be above or below their 20-year historical averages.
Seven separate wind power futures contracts – one each for five areas of Texas and two areas of New York where there is significant wind power generation – are scheduled to begin trading this Friday (August 25, 2007) on the Chicago-based U.S. Futures Exchange, which was formed in 2006 following Man Financial Group’s investment in the former Eurex US.
The new wind power futures contracts are based on the NORDIX wind indexes created by Weather Bid LLC, which measure deviations from average wind speed. The boundaries for the seven regions were established by the National Oceanic and Atmospheric Administration’s National Center for Environmental Protection division.
According to USFE, wind power futures contracts are designed for hedging against loss in wind power revenue and against increases in the cost of wind power. In addition, they are designed for speculating on the price of wind power and on the performance of wind power as compared to other energy sources. The contracts will be settled monthly, according to USFE.
While it’s impossible to say to whether wind power futures trading will take off, the fundamentals suggest that it could become a very large market. The U.S. wind energy industry will add a record 3,000+ megawatts (MW) of capacity in 2007 after adding 2,454 MW in 2006, but all this is just “the tip of the iceberg” compared with future expected capacity additions, according to Randall Swisher, head of the American Wind Energy Association.
So great is global demand for wind turbines that there currently is a worldwide parts shortage. U.S. electric utilities, many of which have been ordered by state legislatures to significantly increase the amount of renewable power they generate, are mostly choosing wind power because it is a more advanced and cost-effective technology than some other green power sources.
This is not to say that “green” energy trading is going to be limited to wind power. On the contrary, discussions are already underway for developing both hydro and solar power futures contracts. Overall, the renewables industry is growing at 20% to 30% a year, according to Ernst & Young’s latest “renewable energy country attractiveness index,” which follows investments in wind, solar and other green energy sources.
While trading has yet to start in the first seven wind futures contracts, plans are already underway to add an eighth, according to Dan Parker, a seasoned renewable energy trader who has been instrumental in setting up this new futures market. Parker told EnergyTechStocks.com that the eighth region will likely be the “Buffalo Ridge” area along the Minnesota-Iowa border.
Nor is wind futures trading likely to be limited to the U.S., says Parker, who expects a second major market to develop before long in Europe, where government mandates are providing an equally big development push for wind power.
Click Here For Part 2 of 3 — ‘Most Important Thing in Years’ for Renewable Energy