The study of Coal market structure for coal fired power plant and application of financial derivatives for coal price risk management aims to study the market structure of coal fired power plants and the applications of derivatives to manage risk for power plants that generate electricity for sale to grid only. The reference price is from the New Castle port in Australia where there is the largest traded of the coal market in the Asia Pacific region. Primary data and secondary data will be collected from the interviews, coal producers and power plants. The information is used to analyze the market structure in qualitative approaches. The projection model of future coal fired power plants and manufacturers is proposed to represent the concept of risk management, derivatives and coal prices.
The study found that the coal market as oligopoly market which the products can be substituted. Therefore the coal prices are adjusted according to market force. The futures price will adjust to the spot price. During on December 2008 to September 2011 was the backwardation market, the futures price is lower than the spot price. Moreover, in case of the power plants to purchase coal in the spot market only will be more fluctuates and higher value at risk. So, the power plants should to be both sign the futures contract and purchase in the spot market. The use of derivatives can reduce the price risk of coal to revenue guarantee and useful in controlling costs for price risk management and increasing material security for the power plants.
