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Given that it takes at least two years from the time you start committing serious money to a wind farm and until it goes online, this means that you have to be able to predict gas prices 2-4 years into the future. If you can do that, you can make better money playing liar's poker in the futures market.

The point of the futures market is that if you're in the wind business it shouldn't matter to you what the price of gas is since you can hedge it. In other words, at 2-4 years ahead you can lock in a price for gas if you need to.

Also, it doesn't matter what your view of gas prices is, since the only price you can lock is the futures price.

At least that's the theory, and I wouldn't be surprised if it didn't work in practice. I'd appreciate hearing from Jerome about how it actually works in practice.

So, in what may be my last act of "advising", I'll advise you to cut the jargon. -- My old PhD advisor, to me, 26/2/11

by Migeru (migeru at eurotrib dot com) on Wed Mar 30th, 2011 at 02:36:47 AM EST
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