Valuation, Hedging and Speculation in Competitive Electricity Markets
Petter L. Skantze, Marija D. IlicISBN: 0792375289;
The challenges facing participants in competitive electricity markets are staggering: high price volatility introduces significant financial risk into an industry accustomed to guaranteed rates of return, while illiquid forward markets prevent effective hedging strategies from being implemented. Valuation, Hedging and Speculation in Competitive Electricity Markets: A Fundamental Approach, examines the unique properties which separate electricity from other traded commodities, including the lack of economical storage, and the impact of a scarce transmission network. The authors trace the sources of uncertainties in the price of electricity to underlying physical and economic processes, and incorporate these into a bid-based model for electricity spot andforward prices. They also illustrate how insufficient market data can be circumvented by using a combination of price and load data in the marking- to-market process. The model is applied to three classes of problems central to the...
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