Power and gas retailers, are exposed to a variety of risks when selling to domestic customers. Many of these risks arise from the fact that customers are offered a fixed price, while the retailer must purchase the gas and power to supply their customers from the wholesale markets. The risk associated with offering fixed price contracts is exacerbated by correlations between demand and market prices. For example, during a cold spell gas demand increases and wholesale prices tend to rise, whilst during milder weather demand falls and wholesale prices reduce.
Dear Mr. Danut,
We have found by using a String Theoretic Networked model of electronic stock exchanges in India's newly globalised stock markets, that due to the Physics of internetworking and the Economics efficiencies of semi-strong form Capital Asset Prices which networking engineers and manages, stock prices which include Energy companies as well as energy distribution companies are efficient over time in physical efficiency*economic efficiency*financial efficiency space. The mathematical-statistical modelling and test of this is Econometrically quite involved using our developed notions of String Field Theory (Mallick (1993, 2012, 2014, 2015), Mallick, Sarkar, Roy, Duttachaudhuri, Chakrabarti (2001, 2007, 2010), Mallick, Hamburger, Mallick (2016, 2017)) and String Matching Algorithms (et.al.) but what it shows in your case is that Energy stocks are efficiently priced across the board. Of course for that one requires certain learning protocols for companies which are however, the usual protocols of learning in society in general viz. reading, writing, arithmetic (Mallick (1993)). This gives certain genetic structure to pricing of shares efficiently in the case of energy stocks too. So I would suggest that you can safely calculate p/e ratios of energy companies too as per traditional methods conditional on our at least Commonwealth education environment. I hope you find some relevance.
Soumitra K. Mallick
Book Energy Investments: An Adaptive Approach to Profiting from U...
I have covered these issues in my new book that is now available at www.amazon.co.uk. I proposed a framework using real options and option games theoretic reasoning. Under a fixed power price regime, you may use renewables as a hedge against volatile fuel prices (in particular hydro and geothermal). Under volatile power prices, you can use binomial tree analysis and fuel to power price correlations to understand the deviations of your cash margins.
If you are interested, you can read "Managing Price Risk for an Oil and Gas Company". Let me know.
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