Revenue put options gain popularity in US power markets

Dealers, led by Morgan Stanley, have made revenue put options an increasingly popular hedging tool with US electricity firms seeking to build new power plants. But some observers warn that the largely untested product contains risks for dealers and their customers alike

Market coupling - special report
US power prices have slumped in recent years, making fixed-price hedges less attractive

The past few years have been tough on US power generators. As the shale boom has unleashed plentiful supplies of cheap natural gas, and improvements in energy efficiency have caused electricity demand to flatline, power prices in many parts of the country have been stuck in a multi-year slump.

Against that backdrop, a new type of bespoke hedging tool has grown increasingly popular among those investors willing to take a long view and construct new power plants. Called the revenue put option, it

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