Electricity Portfolio Management: Optimal Peak / Off-Peak Allocations
Electricity purchasers manage a portfolio of contracts in order to purchase the expected future electricity consumption profile of a company or a pool of clients. This paper proposes a mean-variance framework to address the concept of structuring the portfolio and focuses on how to allocate optimal positions in peak and off-peak forward contracts. It is shown that the optimal allocations are based on the difference in risk premiums per unit of day-ahead risk as a measure of relative costs of hedging risk in the day-ahead markets. The outcomes of the model are then applied to show 1) whether it is optimal to purchase a baseload consumption profile with a baseload forward contract and 2) that, under reasonable assumptions, risk taking by the purchaser is rewarded by lower expected costs.
|Keywords||G11, electricity portfolio management, forward risk premiums, hedge ratio, optimal electricity sourcing|
|Publisher||Erasmus Research Institute of Management (ERIM)|
Huisman, R., Mahieu, R.J., & Schlichter, F.. (2007). Electricity Portfolio Management: Optimal Peak / Off-Peak Allocations (No. ERS-2007-089-F&A). ERIM report series research in management Erasmus Research Institute of Management. Erasmus Research Institute of Management (ERIM). Retrieved from http://hdl.handle.net/1765/10775