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A model for hedging load and price risk in the Texas electricity market

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posted on 2023-06-08, 15:25 authored by Michael Coulon, Warren B Powell, Ronnie Sircar
Energy companies with commitments to meet customers’ daily electricity demands face the problem of hedging load and price risk. We propose a joint model for load and price dynamics, which is motivated by the goal of facilitating optimal hedging decisions, while also intuitively capturing the key features of the electricity market. Driven by three stochastic factors including the load process, our power price model allows for the calculation of closed-form pricing formulas for forwards and some options, products often used for hedging purposes. Making use of these results, we illustrate in a simple example the hedging benefit of these instruments, while also evaluating the performance of the model when fitted to the Texas electricity market.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Energy Economics

ISSN

0140-9883

Publisher

Elsevier

Volume

40

Page range

976-988

Department affiliated with

  • Business and Management Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2013-07-19

First Open Access (FOA) Date

2013-07-19

First Compliant Deposit (FCD) Date

2013-07-19

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