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Electricity portfolio management: Optimal peak/off-peak allocations
Huisman,R. Mahieu,R.J. Schlichter,F.
Huisman,R.
Mahieu,R.J.
Schlichter,F.
Abstract
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.
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2009
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mahieuEE.pdf
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Huisman, R, Mahieu, R J & Schlichter, F 2009, 'Electricity portfolio management : Optimal peak/off-peak allocations', Energy Economics, vol. 31, no. 1, pp. 169-174.