Modeling and Managing Joint Price and Volumetric Risk for Volatile Electricity Portfolios

Johannes Kaufmann, Philipp Artur Kienscherf and Wolfgang Ketter
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Johannes Kaufmann: Next Kraftwerke GmbH, 50825 Cologne, Germany
Philipp Artur Kienscherf: Faculty of Management, Economics and Social Sciences, University of Cologne, 50923 Cologne, Germany
Wolfgang Ketter: Faculty of Management, Economics and Social Sciences, University of Cologne, 50923 Cologne, Germany

Energies, 2020, vol. 13, issue 14, 1-19

Abstract: With an increasing share of renewable energy resources participating in electricity markets, there is a growing dependence between renewable power production and clearing prices of spot markets. Modeling this dependence using bivariate analysis can result in underestimation of market risks and adverse effects for stakeholders’ risk management. To enable an undistorted risk assessment, we are using a copula approach to precisely and jointly model electricity prices and infeed volumes of wind power. We simulate the case of wind farm operators using power purchase agreements (PPAs) to shift the price risk to an energy trader, who integrates the infeed into its portfolio. The trader’s portfolio can either be geographically dispersed, or highly localized. Based on its portfolio, the energy trader can decide to use derivatives such as futures to manage its risk exposure. The trader decides on future volumes subject to its portfolio’s inherent volatility. With a given risk averse strategy, a sufficiently diverse portfolio can help reduce the necessity to trade futures and subsequently the disadvantage of having to pay potential risk premiums.

Keywords: portfolio; portfolio management; risk; risk assessment; energy trading; power purchase agreements; PPA; copula (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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