Details
| Original language | English |
|---|---|
| Pages (from-to) | 1033-1049 |
| Number of pages | 17 |
| Journal | Energy Economics |
| Volume | 29 |
| Issue number | 5 |
| Publication status | Published - 1 Sept 2007 |
| Externally published | Yes |
Abstract
The liberalization of electricity markets has forced energy producing companies and traders to calculate costs closer to the profit frontier. Thus, an efficient risk management and risk controlling are needed to ensure the financial survival even during bad times. Using the RAROC methodology we provide a new framework to quantify risks related to wholesale electricity contracts, also called full load contracts. We do not only consider risk of market price fluctuations but also correlation effects between the spot market price and the load curve of a customer. We further conduct an empirical study on whole sale contracts for industry customers and public utility companies of a German energy provider. Our findings support the adequateness of the approach and point out the importance of considering also price-volume correlation effects for electricity whole sale contracts.
Keywords
- Load contracts, Power markets, RAROC, Risk management, Spot market prices
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Energy(all)
- General Energy
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In: Energy Economics, Vol. 29, No. 5, 01.09.2007, p. 1033-1049.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Quantifying risk in the electricity business
T2 - A RAROC-based approach
AU - Prokopczuk, Marcel
AU - Rachev, Svetlozar T.
AU - Schindlmayr, Gero
AU - Trück, Stefan
N1 - Funding information: The authors are grateful to Richard Tol and two anonymous referees for their insightful comments and suggestions. Rachev gratefully acknowledge research support by grants from Division of Mathematical, Life and Physical Sciences, College of Letters and Science, University of California, Santa Barbara, the Deutschen Forschungsgemeinschaft and the Deutscher Akademischer Austausch Dienst.
PY - 2007/9/1
Y1 - 2007/9/1
N2 - The liberalization of electricity markets has forced energy producing companies and traders to calculate costs closer to the profit frontier. Thus, an efficient risk management and risk controlling are needed to ensure the financial survival even during bad times. Using the RAROC methodology we provide a new framework to quantify risks related to wholesale electricity contracts, also called full load contracts. We do not only consider risk of market price fluctuations but also correlation effects between the spot market price and the load curve of a customer. We further conduct an empirical study on whole sale contracts for industry customers and public utility companies of a German energy provider. Our findings support the adequateness of the approach and point out the importance of considering also price-volume correlation effects for electricity whole sale contracts.
AB - The liberalization of electricity markets has forced energy producing companies and traders to calculate costs closer to the profit frontier. Thus, an efficient risk management and risk controlling are needed to ensure the financial survival even during bad times. Using the RAROC methodology we provide a new framework to quantify risks related to wholesale electricity contracts, also called full load contracts. We do not only consider risk of market price fluctuations but also correlation effects between the spot market price and the load curve of a customer. We further conduct an empirical study on whole sale contracts for industry customers and public utility companies of a German energy provider. Our findings support the adequateness of the approach and point out the importance of considering also price-volume correlation effects for electricity whole sale contracts.
KW - Load contracts
KW - Power markets
KW - RAROC
KW - Risk management
KW - Spot market prices
UR - http://www.scopus.com/inward/record.url?scp=34547591468&partnerID=8YFLogxK
U2 - 10.1016/j.eneco.2006.08.006
DO - 10.1016/j.eneco.2006.08.006
M3 - Article
AN - SCOPUS:34547591468
VL - 29
SP - 1033
EP - 1049
JO - Energy Economics
JF - Energy Economics
SN - 0140-9883
IS - 5
ER -