ABSTRACT
Electricity prices are well known for their volatility. This chapter discusses management of financial risks resulting from variable electricity prices. Generation companies, utility companies, and other electricity sellers and buyers face the need to maximize profits and minimize risks arising from highly volatile electricity prices. One efficient way to manage risk is diversification, i.e., trading in different markets with different counterparts and participating in various types of energy and ancillary service contracts. This chapter covers portfolio management techniques and their effectiveness in real trading decision making. We will also discuss the techniques of price forecasting that serve as the bases of risk management.
