 Selective hedging in hydro-based electricity companiesGaute Egeland Sanda, Eirik Tandberg Olsen and Stein-Erik Fleten Energy Economics, 2013, vol. 40, issue C, 326-338 Abstract: We analyze risk management trends in electricity commodity markets using the production and transaction data and written hedging policies of 12 Norwegian hydropower companies. The scope of our analysis is the hedging of physical electricity production using the power derivatives available at NASDAQ OMX Commodities. In their hedging policy, these companies either use a Cashflow at Risk (C-FaR) approach or a hedge ratio approach, or follow no explicitly stated approach. We find that the derivative cashflows constitute substantial profits for these companies. Furthermore, hedging contributes to reducing the C-FaR for 10 of the companies. These findings are surprising considering that we expect hedging to yield zero expected profit and to smooth the earnings. Overall, our findings reveal that a practice of incorporating market views in hedging decisions is widespread in the sample companies, as both sanctioned in their written hedging policy and as indicated by the substantial hedging profits. Keywords: Energy commodities; Power markets; Risk management; Risk measurement (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:40:y:2013:i:c:p:326-338 DOI: 10.1016/j.eneco.2013.06.018 Access Statistics for this article Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant More articles in Energy Economics from Elsevier |
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