Risk coverage in the face of hydrological variability in a run-off hydraulic power plant using weather derivatives

José Hernández () and Fernando Carvajal-Serna ()
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José Hernández: Celsia S.A. ESP
Fernando Carvajal-Serna: Universidad Nacional de Colombia, Medellín

Lecturas de Economía, 2017, issue 87, 191-222

Abstract: Colombia’s power plant system has a 68 % share of hydraulic component and a 32 % share of thermic component. Such a composition makes the system vulnerable to hydrological variability. With the aim to develop a strategy to cover against hydrological risk in a run-off hydraulic power plant, this paper shows a methodology to build an index based on the theory of weather derivatives. The index, named charge for generation, is built using stream flows and precipitation as underlying variables. The results show that the index is an alternative to reduce the volatility of revenues from energy sales in 92 % in the case of stream flows, and in 38 % for precipitation. Thus, the proposed index is effective as coverage against hydrological risk

Keywords: Colombian power system; climate derivatives; run-off hydraulic power plant; risk coverage; hydrological risk. (search for similar items in EconPapers)
JEL-codes: G17 L10 L94 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:lde:journl:y:2017:i:87:p:191-222

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DOI: 10.17533/udea.le.n87a07

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