Hedging strategies in energy markets: The case of electricity retailers

Raphaël Homayoun Boroumand, Stéphane Goutte, Simon Porcher and Thomas Porcher

Energy Economics, 2015, vol. 51, issue C, 503-509

Abstract: As market intermediaries, electricity retailers buy electricity from the wholesale market or self-generate for re(sale) on the retail market. Electricity retailers are uncertain about how much electricity their residential customers will use at any time of the day until they actually turn switches on. While demand uncertainty is a common feature of all commodity markets, retailers generally rely on storage to manage demand uncertainty. On electricity markets, retailers are exposed to joint quantity and price risk on an hourly basis given the physical singularity of electricity as a commodity. In the literature on electricity markets, few articles deal on intra-day hedging portfolios to manage joint price and quantity risk whereas electricity markets are hourly markets. The contributions of the article are twofold. First, we define through a VaR and CVaR model optimal portfolios for specific hours (3am, 6am,. . . ,12pm) based on electricity market data from 2001 to 2011 for the French market. We prove that the optimal hedging strategy differs depending on the cluster hour. Secondly, we demonstrate the significantly superior efficiency of intra-day hedging portfolios over daily (therefore weekly and yearly) portfolios. Over a decade (2001–2011), our results clearly show that the losses of an optimal daily portfolio are at least nine times higher than the losses of optimal intra-day portfolios.

Keywords: Electricity; Risk; Retailer; Hedging; Portfolio; Intra-day; VaR; CVaR (search for similar items in EconPapers)
JEL-codes: C02 G11 G32 L94 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988315002170
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Hedging strategies in energy markets: the case of electricity retailers (2015)
Working Paper: Hedging strategies in energy markets: The case of electricity retailers (2015)
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:eee:eneeco:v:51:y:2015:i:c:p:503-509

DOI: 10.1016/j.eneco.2015.06.021

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
Bibliographic data for series maintained by Catherine Liu ().