Dynamic short-term risk management strategies for the choice of electricity market based on probabilistic forecasts of profit and risk measures. The German and the Polish market case study

Joanna Janczura and Edyta Wójcik

Energy Economics, 2022, vol. 110, issue C

Abstract: The price risk related to trading in electricity markets has increased significantly in the recent years, due to the ongoing markets liberalization and the growing renewable energy sources production. In this paper we propose a short-term risk management strategy for an electricity supplier, that utilizes diversification of the markets for electricity trade. Based on the day-ahead probabilistic forecasts of electricity prices we calculate predictions of different risk and profit measures taking into account a possible split of the traded energy among markets. Strategies aiming at the risk minimization, profit maximization or finding optimal trade-off between risk and return are applied for the German and Polish electricity markets. The obtained results show that diversifying the markets at which electricity is traded leads to higher profits than trading on the day-ahead market and, at the same time, lower risk than associated with trading on the intraday or balancing market. In each of the considered cases, except for volatility as a risk measure for the German market, the goal of the strategy has been achieved. Implementation of the dynamic strategies has improved the outcomes in terms of risk or profit, compared to the static ones.

Keywords: Electricity market; Risk management; Short-term forecasting; Strategy; Intraday market; Balancing market; Germany; Poland (search for similar items in EconPapers)
JEL-codes: C50 C60 E27 G11 Q47 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:110:y:2022:i:c:s0140988322001840

DOI: 10.1016/j.eneco.2022.106015

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