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 optimally allocate 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 (i) that it is typically not optimal to hedge a baseload consumption profile with a baseload forward contract and (ii) that, under reasonable assumptions, risk taking by the purchaser is rewarded by lower expected costs.
|Keywords||electricity, electricity portfolio management, forward risk premiums, hedge ratio, optimal electricity sourcing|
|Persistent URL||dx.doi.org/10.1016/j.eneco.2008.08.003, hdl.handle.net/1765/17982|
Huisman, R., Mahieu, R.J., & Schlichter, F.. (2009). Electricity Portfolio Management: Optimal Peak / Off-Peak Allocations. Energy Economics, 31(1), 169–174. doi:10.1016/j.eneco.2008.08.003