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Short-term Hedging for an Electricity Retailer

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  • Debbie Dupuis, Geneviève Gauthier, and Fréderic Godin

Abstract

A dynamic global hedging procedure making use of futures contracts is developed for a retailer of the electricity market facing price, load and basis risk. Statistical models reproducing stylized facts are developed for the electricity load, the day-ahead spot price and futures prices in the Nord Pool market. These models serve as input to the hedging algorithm, which also accounts for transaction fees. Back-tests with market data from 2007 to 2012 show that the global hedging procedure provides considerable risk reduction when compared to hedging benchmarks found in the literature.

Suggested Citation

  • Debbie Dupuis, Geneviève Gauthier, and Fréderic Godin, 2016. "Short-term Hedging for an Electricity Retailer," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    • Handle: RePEc:aen:journl:ej37-2-dupuis
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    2. Carbonneau, Alexandre, 2021. "Deep hedging of long-term financial derivatives," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 327-340.
    3. Alexandre Carbonneau, 2020. "Deep Hedging of Long-Term Financial Derivatives," Papers 2007.15128, arXiv.org.
    4. Joakim Dimoski & Stein-Erik Fleten & Nils Löhndorf & Sveinung Nersten, 2023. "Dynamic hedging for the real option management of hydropower production with exchange rate risks," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 45(2), pages 525-554, June.
    5. Lawrence Haar, 2021. "Design Flaws in United Kingdom Renewable Energy Support Scheme," Energies, MDPI, vol. 14(6), pages 1-26, March.
    6. Schütz, Peter & Westgaard, Sjur, 2018. "Optimal hedging strategies for salmon producers," Journal of Commodity Markets, Elsevier, vol. 12(C), pages 60-70.

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