Energy Market Definitions | Pexapark User Manual

European Term	American Term	Definition
Ancillary Services Market	Ancillary Services Market	The ancillary services market facilitates the procurement of essential grid support services that maintain power system stability, reliability, and efficiency. These services include frequency regulation, which ensures the grid operates at a stable frequency (50 Hz in Europe and 60 Hz in the U.S.), voltage support, which helps maintain proper voltage levels across the network, and spinning reserves, which provide fast-ramping generation capacity to respond to sudden demand surges or power imbalances. Additionally, black start services allow certain power plants to restart the grid after a widespread blackout. As renewable energy integration grows, battery storage and demand response play an increasingly vital role in ancillary service markets, helping to balance fluctuations in supply and demand while ensuring a resilient electricity network.
Liquidity	Liquidity	A core concept in financial trading, which includes trading of energy. The market price is made up of bids and offers for certain levels of volume arranged in a stack. If there are not enough offers on the market, one may not be able to transact at the desired price or at all. Liquidity is fostered by the market, the number of market participants, their risk appetite and market regulation. Ideally, the market has enough liquidity, so that electricity or natural gas can be sold and bought with reasonable transaction costs, and without small trade volumes impacting the price of the commodities.
Liquidity Cost	Liquidity Cost	A cost deducted from the forward curve to account for the risk that a product cannot be traded quickly enough in the market without an intervening price change. It is determined by the bid/ask spread and market volume information.
Liquidity Shortfall	Market Liquidity Constraint	The risk that the non-contracted volume has a negative value which may occur due to un-favourable weather conditions (causing volume shortfall) and/or due to un-favourable spot price distributions.
Locational Marginal Price (LMP)	Locational Marginal Price (LMP)	Locational Marginal Price (LMP) is the real-time electricity price at a specific location on the grid, determined by a combination of generation costs, transmission congestion, and grid losses. Higher LMPs indicate grid congestion or supply constraints, while lower LMPs reflect excess generation or low demand. For PPA participants, exposure to LMPs introduces basis risk, as the contracted PPA price may differ from the prevailing LMP at the delivery point, leading to potential revenue fluctuations. Energy storage providers, particularly batteries, take advantage of LMP volatility by charging when prices are low and discharging when prices are high, engaging in arbitrage to maximize financial returns.
Long Position	Long Position	When a market participant owns more electricity or energy contracts than they are obligated to deliver. They have an excess of energy they can sell in the market.
Mark to Market (MtM)	Mark to Market (MtM)	Mtm is a financial accounting method that values a companies assets and liabilities base on current market conditions. It provides a realistic assessment of a company's financial position by establishing a fair value for all of its positions that are subject to market fluctuations. US energy trading organizations use the method to determine their financial situation, profit/loss.
Market Access PPA (Route to Market PPA)	Wholesale Market Access PPA or Direct Access PPA	A market access contract, also known as direct marketing, is for the sale of electricity at market prices. It’s provided by utilities or traders for generators. It covers services such as forecasting production, imbalance management and trading to wholesale markets. A market access PPA does not provide fixed revenue to generators.
Mark to Market (MtM)	Mark to Market (MtM)	When a renewable energy plant is exposed to normalised power markets with no publicly guaranteed long-term renumeration. The term ‘merchant’ is also referred to as subsidy-free renewables. A merchant plant would receive the fluctuating daily spot market price, instead of a fixed-one. Merchant plants reduce merchant exposure through hedging instruments, such as PPAs.
Monte Carlo Simulation	Monte Carlo Simulation	Monte Carlo Simulation is a mathematical technique using the generation of random numbers for modelling risk or uncertainty of a given system, including energy. The random variables are modelled according to appropriate probability distributions and used to simulate a large number of scenarios. Variables of interest (e.g., revenues of a given contract) can be evaluated on each scenario and collectively these evaluations provide a probability distribution of the considered variable of interest. In energy, it is used as a key risk methodology for energy sales and hedging decisions.
Monthly Baseload PPA	Monthly Block PPA (More common in ISO/RTO trading)	In this commercial structure, the buyer agrees to pay a pre-agreed amount of electricity for every hour of each month. This way, the seller is taking into consideration the seasonal variability of production. The difference between the produced volume and the contracted volume is settled at the spot market.
Monthly Profile Cost/Gain	Shape Hedge Cost/Gain	It’s the difference between the value of a monthly profile (volume-weighted average of monthly prices) and an annual baseload profile (flat average of the prices). Whether the difference is a cost or a gain depends on the correlation between the monthly volumes and the monthly prices.
Negative Prices	Negative Prices	Negative electricity prices occur when power supply exceeds demand, forcing generators to pay buyers to take excess electricity. This phenomenon is most common in markets with high renewable energy penetration (such as wind and solar) and limited flexibility in demand or storage.
Negative Pricing Risk	Negative Pricing Risk	Negative pricing risk occurs when electricity market prices drop below zero, meaning generators must pay to inject power into the grid. This typically happens when high renewable energy production coincides with low demand and limited grid flexibility, leading to oversupply and market imbalances. Negative prices force renewable projects—especially those with fixed-price PPAs or subsidy structures—to either reduce generation or incur financial losses. In the US, negative pricing events frequently occur in ERCOT (Texas), CAISO (California), and SPP (Southwest Power Pool) due to high wind and solar penetration combined with transmission bottlenecks.
Nodal Price Risk	Locational Marginal Price (LMP) Risk	The risk that electricity prices at the project's node (local price point) differ significantly from regional hub prices. In US nodal markets (e.g., ERCOT, PJM, CAISO), prices vary by location based on grid congestion and losses. Nodal risk is particularly relevant for merchant renewables and VPPA contracts.
Offtaker	Buyer / Power Purchaser	In a PPA deal, it’s the party that buys the energy, also known as the buyer. It’s the purchaser who buys power from a project developer without taking ownership of the plant.
Pay-as-Produced (PAP)	As-Generated PPA or Unit Contingent PPA	PAP is the most widely known volume structure. In this structure, the offtaker buys any volume produced from the asset at any time. It is similar to a prototypical feed-in-tariff.
Peak Load PPA	Peak Shaped PPA or Block Peak PPA	This is one of the many PPA volume/contract structures, although not a common one It represents a structure where the agreement is around the peak hours of consumption from Monday to Friday. All-day is typically from 8am to 8pm. So, the buyer only commits to buying energy for their consumption during these hours. There are different blocks to pick from, such as off-peak – i.e., purchase power for night load only.
Peak Shaving	Peak Shaving	This refers to the use of energy storage or flexible generation to provide incremental electricity to the grid during peak hours when prices and demand are highest. By storing excess renewable energy, such as solar or wind, during low-demand periods and discharging it when demand spikes, peak shaving helps lower electricity costs, optimize renewable energy usage, and reduce reliance on fossil-fuel-based peaker plants. This strategy enhances grid stability, minimizes curtailment, and supports decarbonization by shifting renewable generation to periods of higher demand.
Physical PPA	Physical Delivery PPA	A physical PPA contract, also known as sleeved PPA, is a contractual agreement where the asset and the offtaker are in the same grid network. This means that there is a physical transfer of the energy – contrary to a virtual PPA. A third party such as a utility is appointed to manage the electricity delivery on behalf of the project. This implies that the physical aspects, such as balancing , need to be included in the contract.
PPA	PPA	A power purchase agreement (PPA) is a contractual agreement between energy buyers and sellers. They come together and agree to buy and sell an amount of energy which is or will be generated by a renewable asset. The PPA regulates the conditions and duration of the sale. Although PPAs for conventional generation have existed for a long time, the advent of the trend in the renewables sector is less than 10-years .It was started by corporates wanting to green their credentials by procuring green electricity straight from a renewable energy plant. PPAs vary structurally in terms of the volume structure that is delivered and how the pricing works. For more information on the fundamentals of a PPA read our What is a PPA guide.
Price Risk	Market Price Volatility Risk	In the PPA world, price risk is the uncertainty of not knowing what price you will get for the energy you produce. If you are an offtaker, it’s the uncertainty of not knowing at what price you will buy energy. The uncertainty (e.g., probability of loss) stems from the high volatility in the wholesale market prices. Price risk is unavoidable but can be mitigated through hedging instruments, such as a PPA or a futures contract that will fix your price.
Price Zone	Nodal Pricing Zone (Used in U.S. markets like PJM, CAISO, ERCOT)	Some countries are divided into separate pricing/bidding areas. Pricing is defined by local supply and demand, and interconnection. A prime example is the Nordic energy market. The physical production is always renumerated in the local area price as quoted and realised on Nord Pool Spot. Nasdaq exchange created the Electricity Price Area Differentials (EPAD) as hedging product allowing members on the exchange to hedge against this area price risk. Another country with different market zones is Italy.
Profile Risk	Shape Risk	Profile risk arises from the fluctuating nature of renewable energy (for example, no solar energy is produced at night). In markets with high renewable energy penetration, times of high production can mean a significant decrease in power price, that is, revenue. This will depend on the location and type of the plant (solar or wind). You can mitigate this risk by choosing certain PPA structures. Electricity prices are usually quoted for standard products (i.e., the delivery of 5MW during Calendar Year 2022) that are based on 24/7 baseload deliveries of electricity. One speaks of “profile risk” of a generating asset such as a wind farm, if the hourly production profile of such an asset deviates from the baseload characteristic and corresponding hourly prices lead to an overall lower value (or higher, as the case may be) in aggregate. The magnitude of the profile risk is driven by the actual profile of the generating asset, the correlation between the generating asset’s forecast error and market prices and the structure of the overall generation market. In markets with high penetration of renewable energy, there is generally a negative correlation between times with lots of wind and/or radiation and market prices. This is often referred to as “cannibalization” effect and forms part of the profile cost. Profile risk can only be hedged through “fixed price” products where a utility is willing to pay a fixed price (usually at discount to the baseload price) for the entirety or parts of the volume produced by the wind farm during at any time. Profile risk captures short-term variations of production, even if the annual production is in line with forecasted volumes.
Profile Shifting	Load Shifting	The practice of adjusting the timing of energy consumption or storage discharge to match favorable market conditions. Load shifting helps optimize renewable energy use, reduce peak demand, and improve overall energy efficiency. Storage assets often shift energy from low-price to high-price periods.
Proxy Revenue Swap (PRS)	Weather Hedge PPA	A financial hedge designed for renewable energy projects where payouts are based on modeled revenue rather than actual energy delivery. These agreements help mitigate weather-related risk by using long-term wind or solar data to determine expected revenues. A third-party insurer or financial institution typically structures the swap.
P-Values (e.g., P50/P90/P10)	P-Values (e.g., P50/P90/P10)	Percentiles are a universal statistical concept used to identify the percentage of scores that falls under a specific value. In the PPA world, an example of where such probability figures are commonly used is to calculate an asset’s production volume, and therefore the revenues from the sales. Before the investment decision, an investor needs to ensure the plant’s profitability based on its output, before moving to follow-up assessment of how other risks influence the plant’s revenues. During the energy yield assessment, there’s a forecasted annual production. The P50 figure represents a 50% chance for the actual output to exceed the forecasted production. The P90 figure represents the volume that it’s 90% probable to be the actual production. Typically, the P90 figure is the smallest one, as it’s the more conservative one. Lenders commonly use it to be on the safe side. P-Values are used in a plethora of distribution assessments, such as revenue, price, cost savings and other.
Regulatory Risk	Policy Risk	It’s a risk stemming from regulatory changes impacting a business model. For renewables assets, a regulatory change can take many forms such as instances of regulator making generators liable for all transmission losses or retroactively cutting down pre-agreed feed-in tariffs.
Replacement Cost	Replacement Energy Cost	The cost of a seller having to replace the PPA’s fixed price in case the counterparty defaults on its obligations or goes bankrupt. In this occasion, it needs to be sorted which portion can be recovered given market prices in force at the time of this default. Whether prices are lower or higher will define the size of the loss. Typically, mitigation tools are guarantee instruments, such as PCG or Bank Guarantees.
Repricing Risk	Reopener Risk	The risk that a contract price needs to be renegotiated due to regulatory changes, index adjustments, or market shifts. This is common in long-term PPAs where market conditions evolve significantly over time. Some contracts include price reopeners, allowing both parties to adjust terms under predefined conditions.
Revenue Distribution Curve	Revenue Probability Curve	It’s the curve representing simulated revenues based on the outcome of the set of scenarios considering volume, price and profile factors deviations. The narrower the curve the more certain is a revenue outcome as the range of outcomes is smaller. The higher the curve, the more scenarios resulted in this specific revenue outcome.
Revenue Sharing (Storage Offtake Contract)	Revenue Sharing (Storage Offtake Contract)	A contract where a storage operator and offtaker share revenue generated from market participation (e.g., energy arbitrage, ancillary services). The revenue split is typically pre-agreed to align incentives between both parties.
Revenue Stacking	Revenue Stacking	The strategy of maximizing revenue by participating in multiple energy markets and services, such as capacity markets, ancillary services, and arbitrage. Revenue stacking improves project economics and reduces reliance on a single revenue stream, increasing financial viability for energy storage assets.
Risk	Risk	Refers to the uncertainties and potential financial, operational, or regulatory challenges that could impact the value, profitability, or effectiveness of the contract for either the seller or the buyer.
Round-Trip Efficiency (RTE)	Charge/Discharge Efficiency	A measure of how much energy is retained after a full charge-discharge cycle. Batteries typically have RTEs of 85-95%, meaning some energy is lost during conversion. Higher efficiency translates to better economic returns.
Seller	Generator / Market Seller	The legal entity responsible for the sale of the energy produced by a renewables project. It is often a special purpose vehicle (SPV). It would be the generator, or a utility because the latter acts both as a buyer and a seller in the PPA sphere. Sellers are also called generators, producers and suppliers.
Settlement Location	Delivery Point	In a financial PPA, or in a CfD, the settlement location (also known as node or trading hub in trading lingo) is where the electricity is sold to the wholesale market. In a cross-border PPA, consumption and production are in different countries. Where the energy will be settled (sold) is an important consideration.
Settlement Risk	Clearing Risk	It’s the risk of a party not receiving the money for its delivered energy, also known as invoicing risk.
Shape Risk	Profile Risk	The risk that a renewable asset generates power at times when market prices are lower than expected. This occurs because solar and wind output do not always align with peak demand periods. Energy storage or hybrid PPAs can help mitigate shape risk.
Short Position	Short Position	When a market participant has a deficit of electricity contracts or has committed to selling more power than they own. This means they must buy electricity from the market to cover their obligations.
Short Term Paying Leg	Fixed Price Window	A contractual provision in a Power Purchase Agreement (PPA) where the offtaker agrees to pay a fixed or predefined price for electricity over a short period within a longer-term agreement. This structure provides initial revenue certainty to the seller, often during the early years of a project, before transitioning to a floating or market-based price. It can also serve as a hedge for the offtaker against short-term price fluctuations. Short-term paying legs are commonly used to de-risk investments, attract financing, or align with regulatory incentives.
Spot Market	Real-Time & Day-Ahead Market (Used in ISO/RTO power trading)	In power markets refers to a short-term electricity trading platform where electricity is bought and sold for immediate or near-term delivery. Prices in the spot market fluctuate based on real-time supply and demand dynamics, grid conditions, and market fundamentals.
Stack-and-Roll	Rolling Hedging Strategy	A very common energy trading term. It’s a hedging strategy where the total exposure of a trader is stacked (e.g summed together) and hedged with futures (short-end instruments). Because there are typically no long-term electricity contracts to hedge with, the entire exposure is stacked, hedged and when short-term contracts expire they are rolled over into new contracts on the remaining exposure. Execution of a stack-and-roll strategy entails both extra cost and risk. Rollovers require crossing the bid-ask spread, resulting in a cost, whereas residual price risk of the stack-and-roll strategy (out of contango/backwardation changes) is charged for by market participants. In a PPA, the offtaker assumes this risk, charging it to the seller via a price discount. The sum of rollover cost and risk discount is termed Liquidity Premium at Pexapark.
Strike Price	Strike Price	The strike price is a key element in financial PPAs and Contracts for Difference (CfDs), representing the agreed fixed price at which the seller and buyer settle power sales. It provides financial stability by ensuring that if market prices fall below the strike price, the buyer compensates the seller, and if market prices rise above it, the seller reimburses the buyer for the difference. For example, if a CfD has a strike price of €50/MWh and the market price is €40/MWh, the buyer pays the seller €10/MWh to cover the shortfall. Conversely, if the market price rises to €60/MWh, the seller returns the €10/MWh excess to the buyer. This mechanism provides price certainty, reducing exposure to market volatility, and is commonly used in government-backed renewable energy auctions, such as the UK’s CfD scheme.
System Price	Locational Marginal Price (LMP) (Used in U.S. ISOs/RTOs)	Electricity system prices is the spot market price at the end of each settlement period. Calculation methods differ between countries, but they usually depend on supply, demand, imbalance costs and other defining parameters. When forward prices are discussed, typically one refers to system prices. System price forwards are an imperfect hedge for a renewable producer as the underlying production is remunerated in local area prices.
Tenor	Contract Duration	The duration of the PPA contract, from its start to the end date. It’s also known as the delivery period.
Vintage (GoOs)	REC Vintage	The year of issuance of a renewable energy certificate (REC), such as a Guarantee of Origin (GoO) in Europe. Determines whether a certificate is eligible for compliance in a given year.
Zero-priced hours	Zero-priced hours	Hours when electricity market prices are close to or below zero due to high renewable generation and low demand. These periods incentivize flexible demand and energy storage solutions, as stored energy can later be discharged when prices recover.