856 Caps and Floors

Caps and floors are similar to swaps but offer price protection in a different manner. First, an upfront cash premium must be paid. Second, one side will

FIGURE 8.8

Energy swap pathways.

always benefit from a change in prices: consumers benefit from falling prices, and producers benefit from rising prices. Caps and floors are complementary trading strategies. A cap sets a maximum or ceiling price for energy consumers seeking full protection from rising prices with no loss of benefit if prices decline. Airlines are natural users of caps because of the price volatility of jet fuel and the need to limit fuel costs. A floor sets a minimum or bottom price and is used by energy producers seeking full protection from falling prices with no loss of benefit if prices rise. Oil, natural gas, and electricity producers are natural users of price floors. Caps and floors can be combined in a single structure called a collar, whereby players can get the advantage of managing both upside and downside price risks.

Solar Stirling Engine Basics Explained

Solar Stirling Engine Basics Explained

The solar Stirling engine is progressively becoming a viable alternative to solar panels for its higher efficiency. Stirling engines might be the best way to harvest the power provided by the sun. This is an easy-to-understand explanation of how Stirling engines work, the different types, and why they are more efficient than steam engines.

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