Futures hedging in electricity retailing

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buir.contributor.authorTanrısever, Fehmi
buir.contributor.orcidTanrısever, Fehmi|0000-0002-3921-3877
buir.contributor.orcidBüke, Burak|0000-0002-6954-9144
dc.contributor.authorTanrısever, Fehmi
dc.contributor.authorBüke, B.
dc.contributor.authorJongen, G.
dc.date.accessioned2023-02-17T13:32:49Z
dc.date.available2023-02-17T13:32:49Z
dc.date.issued2022-09
dc.departmentDepartment of Managementen_US
dc.description.abstractThis paper is concerned with the risk management practices of an electricity retailer motivated by the Dutch electricity market. We examine the effectiveness of the existing base- and peak-load futures contracts as a risk management tool for the electricity retailers. We analytically characterize the retailer’s optimal hedging policy as a function of the serial correlation of the prices and the demand profiles of its customers. We find that the retailer typically over-hedges in the futures market, and the over-hedging amount increases when both base- and peak-load contracts are used. Our findings indicate that although the existing contracts in the futures market are quite efficient to replicate the exposure from profiled customers, when industrial consumers and renewable generation are included to the retailer’s portfolio, the effectiveness of such contracts decreases substantially. In our motivating example, hedging the risk of the profiled customers with base-load contracts, the firm may reduce the variance of its cash flows by 85.9%. In addition to the base-load contracts, including peak-load contracts into the hedging portfolio of the retailer increases the efficiency of hedging to 89.3%. However, when we consider the aggregate portfolio of the retailer including profiled customers, industrial consumers and renewable contracts, the efficiency of hedging through the existing futures contracts goes down as low as 32.8% during certain periods. © 2022, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.en_US
dc.description.provenanceSubmitted by Evrim Ergin (eergin@bilkent.edu.tr) on 2023-02-17T13:32:49Z No. of bitstreams: 1 Investor_attention_and_cryptocurrency_market_liquidity_a_double-edged_sword.pdf: 493894 bytes, checksum: 75bb42fcd24f6d5404e75e80351fbac9 (MD5)en
dc.description.provenanceMade available in DSpace on 2023-02-17T13:32:49Z (GMT). No. of bitstreams: 1 Investor_attention_and_cryptocurrency_market_liquidity_a_double-edged_sword.pdf: 493894 bytes, checksum: 75bb42fcd24f6d5404e75e80351fbac9 (MD5) Previous issue date: 2022-09en
dc.identifier.doi10.1007/s10479-022-04969-wen_US
dc.identifier.issn0254-5330
dc.identifier.urihttp://hdl.handle.net/11693/111535
dc.language.isoEnglishen_US
dc.publisherSpringeren_US
dc.relation.isversionofhttps://doi.org/10.1007/s10479-022-04969-wen_US
dc.source.titleAnnals of Operations Researchen_US
dc.subjectContractingen_US
dc.subjectElectricityen_US
dc.subjectFutures marketsen_US
dc.subjectRisk managementen_US
dc.titleFutures hedging in electricity retailingen_US
dc.typeArticleen_US

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