Electricity as an Investment Option - dummies

Electricity as an Investment Option

Investing in coal and in nuclear power are ways to invest in electricity. You can invest directly in the power industry through the electricity futures market or electrical utilities.

The New York Mercantile Exchange (NYMEX) offers a futures contract that tracks the price of electricity as administered by PJM Interconnection, a regional transmission organization (RTO) that oversees the largest electric grid system in the world and services more than 50 million customers in the United States.

The NYMEX is responsible for generating more than 700 million megawatt hours of electricity across 55,000 miles of transmission lines. Because of its dominance in the U.S. electricity market, the PJM electricity futures contract on the NYMEX provides you with a widely recognizable and tradable electricity benchmark.

The PJM contract (traded under the symbol JM) offers you the option of trading both on-peak and off-peak electricity hours:

  • On-peak: Monday through Friday between 7:00 a.m. and 11:00 p.m.

  • Off-peak: Monday through Friday from midnight to 7:00 a.m. local time; all day Saturday and Sunday.

On-peak hours are usually more liquid because that’s when most electricity is consumed.

Electric utilities are the companies responsible for providing electricity to millions of folks in the United States and around the world, and they offer sound investment opportunities. There are several reasons to like utilities, but the main reason is their very high dividend payout. The industry has on average a 3 percent dividend yield, one of the highest of any industry.