Futures hedging in electricity retailing

This paper is concerned with the risk management practices of an electricity retailer motivated by Dutch market. We examine effectiveness existing base- and peak-load futures contracts as a tool for retailers. analytically characterize retailer’s optimal hedging policy function serial correlation prices demand profiles its customers. find that typically over-hedges in market, over-hedging amount increases when both are used. Our findings indicate although market quite efficient to replicate exposure from profiled customers, industrial consumers renewable generation included portfolio, such decreases substantially. In our motivating example, customers base-load contracts, firm may reduce variance cash flows 85.9%. addition including into portfolio efficiency 89.3%. However, we consider aggregate through goes down low 32.8% during certain periods.