Price volatility-a natural consequence of electricity market deregulation and a trader's delight

A significant factor driving electricity market deregulation is a belief that competitive markets are a more economically efficient mechanism for determining and allocating the cost of electricity. These market structures have externalized the price risk of electricity and presented a price signal-a very volatile one-to participants. The challenge of managing this price risk has changed the industry profoundly. The market structures associated with the markets mentioned above are far from perfect-they have introduced a number of their own inefficiencies, including the creation of risks which are difficult to manage and contributed to increasing price volatility. The author describes how this is the perfect environment for traders.