EconPapers    
Economics at your fingertips  
 

Customer Risk from Real-Time Retail Electricity Pricing: Bill Volatility and Hedgability

Severin Borenstein ()

The Energy Journal, 2007, vol. Volume 28, issue Number 2, 111-130

Abstract: One of the most critical concerns that customers have voiced in the debate over real-time retail electricity pricing is that they would be exposed to risk from fluctuations in their electricity cost. The concern seems to be that a customer could find itself consuming a large quantity of power on the day that prices skyrocket, resulting in a high monthly bill. I analyze the magnitude of this risk, using demand data from 1142 large industrial customers, and then ask how much of this risk can be eliminated through various straightforward financial instruments. I find that very simple hedging strategiesÑforward purchase contracts that are already used with many RTP programsÑcan eliminate more than 80% of the bill volatility that would otherwise occur. I then show that a slightly more sophisticated application of these forward power purchases can significantly enhance their effect on reducing bill volatility.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Downloads: (external link)
http://www.iaee.org/en/publications/ejarticle.aspx?id=2214 (text/html)
Access to full text is restricted to IAEE members and subscribers.

Related works:
Working Paper: Customer Risk from Real-Time Retail Electricity Pricing: Bill Volatility and Hedgability (2006) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aen:journl:2007v28-02-a05

Ordering information: This journal article can be ordered from
http://www.iaee.org/en/publications/ejsearch.aspx

Access Statistics for this article

More articles in The Energy Journal from International Association for Energy Economics Contact information at EDIRC.
Bibliographic data for series maintained by David Williams ().

 
Page updated 2020-09-12
Handle: RePEc:aen:journl:2007v28-02-a05