The responsible investor’s guide to the power sector’s landscape and financial markets
Energy efficiency measures, alternative fuel sources, and smart grid updates are all frequently heard “green” buzzwords related to electricity. While we often analyze the profitability and sustainability of such new initiatives themselves, we rarely think about how they will interact with the existing de-regulated electricity industry and related financial markets. In this report, we explore the main divisions of the sector—generation, transmission, retail, and distribution—and how that industrial structure has created markets for the trading of electricity as a commodity. After taking a look at standard market conditions and basic trading strategies for power, we examine particular shocks to the marketplace—Japan and Germany’s decisions to shut down their entire nuclear fleets—and their impact on energy prices as well as the fuel source mix. We touch on how unique industry characteristics will determine the success of—and perhaps be changed by—the growing movement toward sustainable energy generation/usage. Lastly, we highlight other important financial markets tied to power: weather and carbon. We hope that sustainable investors use this report to more accurately determine the potential for environmentally responsible innovations by viewing them in a broader financial/industry context.