Risk hedging against the fuel price fluctuation in energy service business

Masaaki Bannai, Yasushi Tomita, Yasushi Ishida, Takahiko Miyazaki, Atsushi Akisawa and Takao Kashiwagi

Energy, 2007, vol. 32, issue 11, 2051-2060

Abstract: Energy service business, or energy service company (ESCO), is expanding among industrial users as a means of energy saving. The ESCO business normally tends to become a long-term operation. During the operation, fluctuations of fuel and electricity costs significantly impact on the stability of the profit from ESCO business. Therefore, it is essential to reduce the risk of fuel and electricity cost fluctuations. Generally, a transaction called “financial derivative” is used as a measure of hedging against the fuel price fluctuation. In the case of ESCO business, it is necessary to manage the risk of both electricity and fuel price fluctuations because the variation in electricity price strongly affects the profit from ESCO as that in fuel price does.

Keywords: Energy service; ESCO; Risk hedging; Fuel derivative; Cogeneration (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:32:y:2007:i:11:p:2051-2060

DOI: 10.1016/j.energy.2007.05.003

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