Insuring a Small Retail Electric Provider’s Procurement Cost Risk in Texas

Chi-Keung Woo, Jay Zarnikau (), Asher Tishler and Kang Hua Cao ()
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Asher Tishler: Coller School of Management, Tel Aviv University, Tel Aviv 69978, Israel
Kang Hua Cao: Department of Economics, Hong Kong Baptist University, Kowloon Tong, Hong Kong, China

Energies, 2022, vol. 16, issue 1, 1-12

Abstract: Motivated by the relatively infrequent but very large price spikes in the day-ahead and real-time energy markets operated by the Electric Reliability Council of Texas, this paper proposes an insurance that a small and risk-averse retailer in Texas (i.e., a retail electric provider (REP)) may buy to prevent financial insolvency caused by inadequate risk management. It also demonstrates the insurance’s practical design, pricing, and implementation. As participation in the REP’s procurement auction is voluntary, the insurance is mutually beneficial for the REP and the insurance seller. Hence, the proposed insurance is a newly developed wholesale market product that deserves consideration by REPs in Texas and competitive retailers elsewhere.

Keywords: insurance; retail service provider; spot price spike; electricity markets; ERCOT (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2022
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