Fuels

One of the most important factors for determining the cost of power is the price of the fuel input used to produce it. In Europe thermal power plants' fuel inputs include hard coal, fuel oil, gasoil, lignite and natural gas.

In order to ascertain the future price of power the future cost of these fuel inputs is fundamental, and hence an understanding and presence in these markets is a necessity in order to trade power in Europe

Depending on the country you are looking at, natural gas prices are determined in different ways. There are various price indices for different delivery points, whether the UK's NBP, Belgium's Zeebrugge or Germany's BEB, which are formed by supply and demand economics, but still more often than not natural gas is priced on formulae which are calculated basis crude oil and petroleum product indices.

International forward markets in coal, crude and petroleum products provide a mechanism to calculate and hedge forward prices in electricity. Indeed over the last few years, hedging and trading dark spreads (margin between sales price of power and the cost of the coal input used to produce it) and spark spreads (sales price of power versus its cost of gas) have become one of the fundamental tools of generators and traders.