A survey on risk management in electricity markets

Abstract

In the electricity market, electricity prices are substantially more volatile than any other commodity price. Confronting with this extreme price volatility, more and more market participants are recognizing the importance and necessity of risk management. This paper introduces some risk management techniques which are widely used in the financial literature and their applications in the electricity market. These techniques include hedging, portfolio optimization, risk measurement and asset valuation. Furthermore, this paper also introduces several additional techniques of risk management which are developed to deal with the specialties of electricity, electrical assets and electricity market. Based on the literature survey, some suggestions for future work are offered