Commodity Option Pricing: A Practitioner's Guide

7 Power

Electricity is one of the more recent forms of energy available to power the industrial revolution. We already know that fossil fuels can be burnt to liberate the stored energy in the form of heat. Additionally, steam engines and internal combustion engines can harness the energy of fossil fuels via combustion and perform mechanical work – for example, pumping water, powering factories or powering motor vehicles, airplanes and ships.

There are, however, practical limits on how small an internal combustion engine can be made, largely due to the heat produced. Small steam engines are inefficient and are hard to maintain. Additionally, the fuel requirements place constraints on the physical location where such engines can be used. In contrast, electric motors are far more amenable to miniaturisation, and can be situated far more flexibly. For this reason, electric motors were often preferred in factories, such as those used for production of the Ford Model T car. Electric lighting is safer and less polluting than gas lighting, particularly in coal mines and factories where inflammable agents may be present.¹ Finally, electricity is an important factor in metallurgy, such as electroplating, electrowinning, and the extraction of aluminium.

In addition to its role in the so-called “Second Industrial Revolution”, electricity is also crucial in its roles in telegraphy, telephone, radio and television, computers, the Internet, flight, space technology, medical applications, and ...