How a power hedge settles
A fixed-price power hedge never delivers a single megawatt-hour. Each month it settles the gap between the price you locked in and the price the market charged.
A large load in Texas usually buys its power at the market price, which can swing from below zero to thousands of dollars a megawatt-hour. To make the bill predictable, it can sign a financial hedge with a trading firm. The hedge fixes a price for a set volume of power and settles each month against a published market index, such as an ERCOT hub’s average real-time price.
The site keeps buying its actual power from the grid at market prices. The hedge runs alongside as a side payment:
Monthly settlement = (fixed price − market price) × hedged volume
If the market comes in below the fixed price, the site pays the trading firm the difference. If the market comes in above it, the trading firm pays the site. Either way, the power bill plus the settlement lands on the fixed price for the hedged volume.
Try it
Made-up numbers: a site hedges 100,000 MWh for the month, about 137 MW running around the clock, at a fixed $50/MWh.
- Power bill at market
- $3,500,000
- Site pays the trader
- $1,500,000
- Net cost
- $5,000,000
| Market price | Power bill | Settlement | Net cost |
|---|---|---|---|
| $35/MWh | $3.5M | Site pays $1.5M | $5.0M |
| $50/MWh | $5.0M | Nothing | $5.0M |
| $80/MWh | $8.0M | Site receives $3.0M | $5.0M |
Made-up numbers. The net cost only holds this neatly when the site uses exactly the hedged volume and pays exactly the index price.
Where it stops being neat
- Volume. The hedge settles on the agreed volume, not on what the site used. A site that runs less than it hedged is left holding a price bet on the difference.
- Location. The hedge settles at a hub, but the site pays the price at its own point on the grid. The gap between the two, called basis, is not hedged.
- Shape. An around-the-clock hedge covers every hour equally. A load that runs more in some hours than others is only partly covered.
- Shutting off. A flexible site that switches off in a price spike still collects the hedge payment on its full volume for those hours. Flexibility and a hedge can work together, which is part of why the miners’ playbook matters to AI data centers.
What I’d check on a hedged power cost
- How much of the expected load is hedged, and for how long?
- Which index does it settle against, and how far is the site from that hub?
- Is the hedge shaped to how the site actually runs?
- What collateral does the trading firm require if prices move against the site?
All numbers on this page are made up to show the mechanics. The calculator shows what real 2025 ERCOT hub prices did, hour by hour.
Questions, or a hedge you’re trying to read? Email me at jlraney99@gmail.com.