EconPapers    
Economics at your fingertips  
 

Hedging strategies in energy markets: the case of electricity retailers

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

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 (3 am, 6 am,. . . ,12 pm) 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: N0 R14 J01 (search for similar items in EconPapers)
Date: 2015-09-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed

Published in Energy Economics, 1, September, 2015, 51, pp. 503-509. ISSN: 0140-9883

Downloads: (external link)
http://eprints.lse.ac.uk/82976/ Open access version. (application/pdf)

Related works:
Journal Article: Hedging strategies in energy markets: The case of electricity retailers (2015) Downloads
Working Paper: Hedging strategies in energy markets: The case of electricity retailers (2015) Downloads
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:ehl:lserod:82976

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().

 
Page updated 2020-02-19
Handle: RePEc:ehl:lserod:82976