Evaluation of Different Hedging Strategies for Commodity Price Risks of Industrial Cogeneration Plants

Andreas Palzer (), Günther Westner () and Reinhard Madlener
Additional contact information
Andreas Palzer: Fraunhofer Institute for Solar Energy Systems ISE, Postal: Heidenhofstraße 2, 79110 Freiburg, Germany, http://www.ise.fraunhofer.de/de
Günther Westner: E.ON Energy Projects GmbH, Postal: Arnulfstrasse 56, 80335 Munich, Germany, http://www.eon.de/

No 2/2012, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: In this paper, we design and evaluate eight different strategies for hedging commodity price risks of industrial cogeneration plants. Price developments are parameterized based on EEX data from 2008-2011. The probability distributions derived are used to determine the value-at-risk (VaR) of the individual strategies, which are in a final step combined in a mean-variance portfolio analysis for determining the most efficient hedging strategy. We find that the strate-gy adopted can have a marked influence on the remaining price risk. Quarter futures are found to be particularly well suited for reducing market price risk. In contrast, spot trading of CO2 certificates is found to be preferable compared to forward market trading. Finally, portfolio optimization shows that a mix of various hedging strategies can further improve the profita-bility of a heat-based cogeneration plant.

Keywords: Commodity price risk; Cogeneration; Hedging; mean-variance portfolio optimization (search for similar items in EconPapers)
JEL-codes: D22 D81 G11 G32 Q48 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2012-03, Revised 2013-03
New Economics Papers: this item is included in nep-ene and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Evaluation of different hedging strategies for commodity price risks of industrial cogeneration plants (2013)
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