Any of you guys have any experience with gas to power trading from the supply side (i.e. short gas long power exposure). Origination been pushing around a lot of these types of deals lately as a way to pickup some uplift on gas vols. My power knowledge is a bit limited as I come from a purely gas background and my desk hasn't really done any of these types of deals in the past, but wanted to try and wrap my head around them the best I could. In terms of trading around/managing exposure on something like this is it simply just a heat rate(power/gas) trade? As heat rates expand would make money, contract lose money so in terms of trading around the physical position or putting on/unwinding hedges would do so relative to heat rates?
Am I thinking about this correctly? Just looking historically at heat rates it seems they have a generally well defined upper & lower bounds and mean revert. Seems there's a few times a year where these spreads really blow out or contract in a large way (typically on big moves up or down in gas) where the power prices don't seem to follow as quickly and would give you a good time to put on/unwind financial hedges against a natural long physical position. Of course you have the longer term trend in heat rates but these large short term disconnects really stood out to me when I took a look.
I feel the most important part would be trying to make sure you lock-in at least a portion of the uplift on day1 of the deal hitting the books, otherwise your uplift could get eaten away pretty quickly, and then just scale in/out as heat rates move ideally on the couple of large move days?
Anyways this may be too much for a single post and would welcome any DMs from some of you older guys if you have any experience with stuff like this.
Thanks
