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American Option
An American Option is a contract through which the buyer has the right, but not the obligation, to buy or sell the underlying asset (eg. a commodity) on which the option has been built, called the underlying, at a given price (strike price) on any date between the start date and the expiration date. A premium is paid on the trade date for buying such right.

ARERA
In Italy, ARERA (Regulatory Authority for Energy and Environment, named AEEGSI until 01/01/2018), is an independent entity which regulates and protects costumers and sponsors competition in the energy, gas and hydro markets.

Asian Option
Asian options are options for which the payoff depends on the avarage price of the underlying on a given period. An Asian Option is automatically excercised at the end of the "delivery period" based on the calculation of the simple average of spot prices during the "delivery period" which is then compared with the strike price.

Ask Price
The Ask price, or offer price, is the minimum price an operator would accept in order to be willing to sell a given amount of an asset or of a financial instrument.

Asset Backed Trading
Trading activity through which it is possible to extract value from market volatility thanks to intrinsic flexibility of physical assets.

AU (Acquirente Unico)
In Italy, the AU (standing for Sole Buyer) is a limited company owned by the manager of power services in Italy known as the Gestore dei Servizi Energetici (GSE) S.p.A., which guarantees the power supply to the clients belonging to the Mercato Tutelato (Protected Market). After liberalization of the power market, the AU will buy power at favourable conditions for passing it to those companies which sell energy to retail customers belonging to the Mercato Libero (Free Market).

Auction
Market in which negotiation and exchange take place through an auction mechanism, with the insertion and modification of trading proposals within a fixed time frame, and the conclusion of contracts in a single future time and at a single price, given by the equilibrium between supply and demand.

Backwardation
Expression that describes a market in which the value of the futures of a certain commodity for the following months is lower than the current spot market level. When this situation occurs, the market participants foresee a drop in the spot. The reverse situation is known as Contango.

Baseload
Block of electrical energy object of contract during all hours of the day.

Basis Risk
Risk that appears due to the impossibility of perfectly hedging a position, due to not finding a product with a risk having the exactly opposite correlation to the one we want to hedge.

Bid Price
The Bid price is the maximum price, an operator would be willing to pay, in order to buy a given amount of an asset or of a financial instrument.

Bid-Ask spread
The Bid-Ask spread is the difference between the Ask and Bid prices. Basically, it represents the gross profit of dealers and the implicit cost an investor would pay fo such transaciton. The width of the Bid-Ask spread is a proxy for the liquidity in the market: a smaller spread is paired with a more liquid market.

Bilateral Physical Contract
Power supply contract between a qualified consumer/external agent and a producer/external agent, whereby the seller agrees to provide the buyer with a certain amount of energy at a price agreed between them.

Call Option
Forward contract through which the buyer has the right, but not the obligation, to buy the underlying asset on a given date and at a given price. A Call option will be exercised if and only if the market price of the underlying asset is higher than the strike price.

CDE
In Italy, CDE (Power Derivatives Delivery) is the platform for physical delivery of contracts arranged in the derivatives market managed by Borsa Italiana S.p.A (IDEX). CDE is managed by the GME.

Clean Dark Spread
It refers to the net revenues realised by a power generator after paying for the cost of coal fuel and carbon allowances (CO2).

Clean Spark Spread
It refers to the net revenues realised by a power generator (CCGT) after paying for gas costs and carbon allowances (CO2).

CNMC
In Spain, the National Commission of Markets and Competition is an entity that promotes and defends the proper functioning of all markets, in the interests of consumers and companies. It is a public body with its own legal personality, independent of the Government and subject to parliamentary control.

Cogeneration
Cogeneration is a production process through which mechanical power and heat are generated simultaneously.

Collar
Hedging strategy using options where the producer buys a Put option and sells a Call option, creating a security interval with a price "Floor" and "Cap"

Contango
Expression that describes a market in which the value of the futures of a certain commodity for the following months is higher than the current spot market level. When this situation occurs, market participants foresee a rise in the spot. The inverse situation is known as Backwardation.

Continuous Market
Market in which negotiation and exchange take place during the whole opening time of the market, which involves the entering of new offers and bids on a continuous basis. The contracts are closed based on the automatic matching of sell and buy orders.

Contract for Differences
Financial contract where the seller is obliged to pay the buyer positive differences between a reference price (market price) and a strike price (contract price) multiplied by the contract volume, in exchange for a reciprocal obligation on the part of the buyer in case of that the reference price is lower than the exercise price.

Credit Rating
A credit rating is an evaluation of the credit risk of a prospective debtor, predicting their ability to pay back the debt and an implicit forecast of the likelihood of the debtor defaulting.

Credit Risk
Credit risk, or default risk, is the risk that a financial loss will be incurred if a counterparty to a transaction does not fulfil its financial obligations in a timely manner.

Delta Hedging
Management of the exposure of an option portfolio through sales and purchases which are performed with the aim of minimizing portfolio risk.

Dispatch
Due to the impossibility of storage of power, the management of this supply and demand is necessary in order to always let them be in equilibrium. Dispatching is the activity - for which Terna is responsible in Italy - which manages power feed-in and power out-take to the national energy-grid aimed at assuring balance in a safe environment. For doing this, Terna uses the so-called "dispatch services" provided by UdD following Authority's guidelines.

EMIR
The European Market Infrastructure Regulation (EMIR) is a body of European legislation for the regulation of over-the-counter derivatives.

ENAGAS
Spanish gas market TSO. Enagás is Spain’s leading natural gas transmission company and Technical Manager of the Spanish gas system.

Energy Efficiency Certificates
Refer to White Certificates.

European Option
A European Option is a contract through which the buyer has the right, but not the obligation, to buy or sell the underlying asset (eg. a commodity) on which the option has been built, called the underlying, at a given price (strike price) on a given date (the expiration date). A premuium is paid on the trade date for buying such right.

European Swaption
Contract that gives the owner the right but not the obligation to buy or sell the underlying swap at a specific price, known as the strike price, on the options expiration date.

Firm Price
A quote that has been arranged and that will not change for a determined period of time.

Forward Contract
A Forward contract is an OTC contract (exchanged on no-regulated markets) through which the parties agree to exchange on a future date a given volume of the underlying asset a fixed price.

Free Market
In Italy, in the Free Market there are all those consumers who actively chose their energy and gas providers. The power market will be completely liberalized by July 1st, 2019.

Futures
A Futures contract is a standardized contract on regulated exchange markets. Futures contracts are agreements between two parties for the delivery of an underlying on a future date, at a fixed price.

GME
In Italy, GME S.p.A. (Manager of Power Markets) is an Italian company charged with the responsibility of organizing and managing the power market and the economic management of the wholesale power market.

GSE
In Italy, GSE S.p.A. (Manager of Power Services) is an Italian company, 100% controlled by Ministry of Economics and Finance, which in engaged in the promotion, incentivization and development of renewable sources in Italy. The GSE controls three companies: the AU, the GME and the Research on the Energy System (RSE).

Guarantee Manager
In Italy, the responsible for the centralized management of guarantees for contracting capacity infrastructure with regulated third-party access, guarantees for participation in the Organized Gas Market and guarantees for the imbalances settlement.

Guarantees of Origin (GoO)
Guarantees of Origin are securities which certify the origin of energy generated from renewable sources. Each GoO is issued by the national Issuing Body for each MWh produced, if the producer and owner of the RES plant requests it. These certificats are cancelled for proving to final customers the energy he bought is from renewable sources.

Hydro Producible
During a given time interval, it is the maximum amount of power that the set of inputs (rainfall, pumping, etc.) corresponding to the time interval considered would allow to produce in the most favorable conditions.

IDEX
In Italy, It's a submarket of IDEM in which power derivative instruments are traded.

Imbalance
The Imbalance is the difference between the Energy Input/output and the programmed input/output.

Indicative Price
A nominal quote for which is neither firm nor binding. This is a preliminary estimation of the bid and offer price.

ISDA
ISDA (International Swaps and Derivatives Association) Master Agreement is the standard document that is commonly used to govern over-the-counter financial derivatives transactions.

Italian Power Exchange (IPEX)
Refer to Power Exchange. IPEX is used abroad for referring to the Italian power exchange.

Liquidity Risk
It is the one arising from the lack of liquidity in a market to make effective the desired strategies in risk management.

Limits of transit
In Italy, maximum energy transport capacity between a pair of zones, expressed in MWh. The transit limits are part of the preliminary information communicated daily by Terna SpA to the GME which publishes them on its website. These limits are used by GME as part of the market resolution on the MGP and MI.

Market clearing price (MCP)
In Italy, equilibrium point between supply and demand. The MCP is the profit of accepted bids in margin-based markets (eg. MGP, MI).

Market Coupling
Integration mechanism for two or more power markets in different areas. Thanks to the Market coupling, the use of transmission capacity between different countries is implicitly determined at the same time as the value of power in those countries.

Market Maker
Intermediary whose purpose is the provision of liquidity in a specific market, by keeping the level og Bid and Ask prices in the market he is responsible for. Consequently, a minimum level of buy and sell transactions is assured.

MB (Market Balancing)
In Italy, the MB is the Italian market in which sell and buy offers are sent to Terna in order to implement the secondary regulation aimed at keeping real-time balance between power input and output in the grid.

MEFF
In Spain, MEFF Sociedad Rectora de Productos Derivados S.A.U. is BME’s Derivatives Exchange. MEFF Offers electricity derivatives (MEFF Power).

ME
In Italy it is the set of the following markets: MPE, MTE and CDE.

MGP (Market of the day before)
In Italy, the MGP is the market in which bids on power are managed through the design of input and output programs for each hour of the following day.

MI (Market Intra-day) 
In Italy, it is the market in which power sell and buy orders are placed for each hour of the following day, in order to modify the injection and withdrawal schedules defined in the MGP.

MIBGAS
In Spain, MIBGAS is responsible for the management of the Organised Gas Market. The MIBGAS trading platform is used for the purchase and sale of natural gas with physical delivery at the Virtual Balancing Point (PVB in its Spanish initialism) for Within-Day, Day-Ahead, Balance of Month and Month-Ahead products.

MIFID II
It is a regulation that increases the transparency across the European Union's financial markets and standardizes the regulatory disclosures required for particular markets.

MPEG (Market Daily products)
In Italy, a new kind of continuous market (wanted by the GME) in which daily products with a baseload or peakload profile are traded.

MPE
In Italy it's the set of the following markets:MGP, MI, MPEG and MSD.

MSD (Market Dispatching Service)
In Italy, market through which the TSO (Terna in Italy) procures the necessary resources for managing and controlling the system. Among the target activities carried out in the MSD there are: the resolution of intrazonal congestions, the creation of the energy reserve and the balancing in real time. On the MSD, Terna acts as a central counterparty and the accepted offers are remunerated through the pay-as-bid mechanism.

MTE
In Italy, the market in which forward power contracts are negotiated when there is obligation of delivery and withdrawal.

NDA (Non-disclosure agreement)
A nondisclosure agreement (NDA) is a legal contract between two or more parties that signifies a confidential relationship exists between the parties involved. The confidential relationship often refers to information that is to be shared between the parties but should not be made available to the general public. NDAs are also commonly referred to as a confidentiality agreement.

Off-Peak hours
Off-peak hours include the hours ranging from 8:00 p.m. to 8:00 a.m. on working days. Whole weekend days are included in off-peak hours as well.

OMICLEAR
In Iberia, OMICLEAR is a company constituted and totally owned by OMIP, which executes the role of Clearing House and Central Counterparty of operations carried out on the market.

OMIE
The Iberian Market Operator (OMIE) manages the entirety of the markets (daily and intraday) for the whole of the Iberian Peninsula, and its operating model is the same as the one applied by many other European markets.

OMIP
OMIP is the derivatives exchange market for Iberian and non-Iberian products (including Mibel).

Parent Company Guarantee (PCG)
Parent company guarantee is a guarantee of performance required by a client of a company which is owned by a parent company in which the latter guarantees its subsidiary. In this case the subsidiary's client is the beneficiary of the guarantee.

Participating Swap
Power price floor without paying a premium in exchange of the producer giving part of the potential "upside" to the buyer (Floor + Swap).

Pay as bid
The Pay-as-Bid is a valorization rule in the dispatch market according to which the Bid price is the one at which bids are valuated.

Peak hours
Peak hours include the hours ranging from 8:00 a.m. to 8:00 p.m. on working days only.

Peakload
Block of electric energy object of contract in Peak hours.

Platform for Energy Accounting (PCE)
In Italy, the PCE is the platform which supports operatos for the registration of forward commercial transactions (residual hedging), for defining input and output programs.

POD (Pickup Point)
In Italy, the POD (Point of Delivery) is the alphanumeric code for identification of the physical point of delivery of power to final clients.

Potential Future Exposure
Potential Future Exposure (PFE) is the maximum expected credit exposure over a specified period of time calculated at some level of confidence. PFE is a measure of counterparty risk/credit risk. It is calculated by evaluating existing trades and the possible market prices in future during the lifetime of transactions.

Power Exchange
In Italy, the Power Exchange is the regulated market designed as a virtual place for wholesale power trading and is managed by the GME.

PPA
A PPA (Power Purchase Agreement) is a contract entered with producers and plant owners through which the energy produced by their plants is bought. On the other hand, the buy is engaged in acting as energy manager (eg. producing forecasts on renewable-sourced plant production, input programs, offers on the market, metering, settlement, dispatch operations, etc).

Price Risk
The risk of losing value due to a change in some market variable, such as commodity or equity prices, interest rates or foreign exchange rates.

PUN (National Single Price)
In Italy, PUN (Single National Price) is the power reference price in the Italian Power Exchange (IDEX).

Put Option
Forward contract through which the buyer has the right, but not the obligation, to sell the underlying asset on a given date and at a given price. A Put option will be exercised if and only if the market price of the underlying asset is lower than the strike price.

PVB
In Spain, Virtual Balancing Point or point of physical delivery of the gas negotiated through MIBGAS.

REE
Spanish TSO. The company is exclusively involved in electricity system operation and transport.

REMIT
Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) is an EU regulation designed to increase the transparency and stability of the European energy markets while combating insider trading and market manipulation.

Regulatory risk
It is the risk derived from possible unexpected changes in the regulatory framework.

S3 Product
In Spain, financial hedging product offered by Endesa that ensures the special regime renewable producers the reference prices of the semi-regulatory period contained in RD 413/2014.

Settlement
The Settlement is the phase in which the contractual obligations of both parties are fulfilled. The settlement date is the one in which the value of the cash flow is calculated and the money is actually exchanged.

Spot contract
A Spot contract is a contract through which an asset is exchanged for its spot monetary value. The Settlement date is usually two working days after the trade date.

Spread
Option on the price differences between two underlying assets.

Standby Letter of Credit (SBLC)
A standby letter of credit (SBLC) is a guarantee of payment issued by a bank on behalf of a client that is used as "payment of last resort" if the client fails to fulfill a contractual commitment with a third party.

Strike Price
The Strike price, or Excercise price, is the value at which the owner of an option can excercise his right.

Strip
Series of options with expiration in successive dates.

Supply Curve
The supply curve is the mathematical function which describes the dependence between quantities of a good which consumers would be willing to sell  and the different market price levels.

Swing
Contract that gives the right but not the obligation to buy or sell a variable amount of energy on certain dates or for a certain period of time at a given price provided that during the life of the contract the right to buy or sell energy is only exercised a certain number of times, and that maximum and minimum quantities are applied each time the contract is exercised.

Term Sheet
A Term Sheet is a nonbinding agreement setting forth the basic terms and conditions under which a contract will be entered. A term sheet serves as a template to develop more detailed legal documents.

Terna S.p.A.
In Italy, Terna S.p.A. is responsible for the transmission and management of power flows in Italy, assuring the balancing of demand and supply.

TEE (Energy Efficiency Certificates)
Refer to White Certificates.

Tolling
In the electric power market, tolling agreements are typically between a power buyer and a power generator, under which the buyer supplies the fuel and receives an amount of power generated based on an assumed heat rate at an agreed cost.

Volatility
The volatility of a series of prices is the standard deviation of the prices yields normalized by time, expressed in annual terms.

VPP (Virtual Power Plant)
Virtual Power Plants are contracts for the sale of virtual productive capacity, which replicate the functioning of a productive plant. These contracts allow the transfer of a share of production at fixed prices.

Weather Derivatives
Weather Derivatives are derivative instruments which could be used for managing weather-implied risks. These instruments can be built on different measures (temperature, rain, solar radiation and wind) and their settlement is calculated based on the data provided by third independent parties.

White Certificates
In Italy, White Certificates, or Energy Efficiency Certificates, are tradable certificates on pursued energy efficiency, obtained through projects reducing final electricity consumption. The White Certificates system was established by the D.M. dated 20/07/2004 which required big power and natural gas suppliers to reach given levels of efficiency, measured in TEP (TOE, tons of oil equivalent).

Wholesaler
A natural or legal person buying or selling wholesale power or natural gas.

Zone
In Italy, power grid zones refer to different geographic areas (which could be either real or virtual ones) which are used for the set up of zone-dependent prices. The relevant zones are: North, North-Central, South-Central, South, Sicily, Sardinia.

Zone-dependent price
In Italy, the power price is tightly linked to the zone in which it is produced, in fact for each virtual/real zone a price is set as the equilibrium price between supply and demand.