2007•East China Electric PowerRequires access

Application of hedging to avoiding risks of electricity price fluctuation

MO Xiao-ping

Abstract

The risk of electricity price fluctuation directly affects power enterprise's economic profits while the futures trading of electricity is an effective tool to deal with the price risk in the spot market.The method of using various hedging strategies in the futures market to retrieve losses made in the spot market is discussed.The power enterprise is then enabled to avoid risks of electricity price fluctuation through trading in the futures market.

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Key concepts: Futures contract, Electricity market, Electricity, Spot contract, Futures market, Spot market, Forward market, Normal backwardation