Facebook LinkedIn Twitter
Shop

This is an Open Access article. You will receive access to the full text.

Short-term Hedging for an Electricity Retailer

Open Access Article

Abstract:
A dynamic global hedging procedure making use of futures contracts is developed for a retailer of the electricity market facing price, load and basis risk. Statistical models reproducing stylized facts are developed for the electricity load, the day-ahead spot price and futures prices in the Nord Pool market. These models serve as input to the hedging algorithm, which also accounts for transaction fees. Back-tests with market data from 2007 to 2012 show that the global hedging procedure provides considerable risk reduction when compared to hedging benchmarks found in the literature.

Download Executive Summary Download PDF Data Annex

Energy Specializations: Electricity – Markets and Prices ; Electricity – Distributed Generation; Electricity – Local Distribution; Energy Investment and Finance – Corporate Strategy; Energy Investment and Finance – Public and Private Risks, Risk Management; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, D81: Criteria for Decision-Making under Risk and Uncertainty, C58: Financial Econometrics, G12: Asset Pricing; Trading Volume; Bond Interest Rates, C53: Forecasting Models; Simulation Methods

Keywords: Risk management, power markets, energy, load modeling, futures contracts

DOI: 10.5547/01956574.37.2.ddup

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.


Published in Volume 37, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.