Risk-adequate pricing of retail power contracts

Markus Burger and Jan Müller

Journal of Energy Markets

Abstract: ABSTRACT Risk-adequate pricing of retail power contracts is essential for energy suppliers. The price of retail contracts is composed of a basic energy price, the sales margin and a premium due to various risk factors. We analyze the price validity period, credit risk, price-volume correlation, individual volume risk, hourly price profile risk, balancing power costs and operational risk with the corresponding adequate risk premium. The main focus of this paper is the price-volume correlation, where a combined load and price model is used. This model allows quantiles of price- volume risk to be determined for a retail portfolio or an individual customer

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