The Oxford Institute for Energy Studies has published a paper on the difficulty of hedging against price volatility in electricity markets — and how the shift to renewable energy sources such as wind and solar, as well as better storage, could help better manage these risks in the long term.
From the abstract:
Our key insight is that when the real-world constraints of credit and financing are considered, the volatility of thermal fuels and their co-dependence under extremes may be a key reason as to why electricity markets have been incomplete in terms of long-term hedging contracts. Counterintuitively, in the context of the energy transition, our results show that, ceteris paribus, increasing the penetration of low carbon resources like wind, solar and energy storage, can add tail-diversity and improve contractability
“Hedging and Tail Risk in
Electricity Markets,” Oxford Institute for Energy Studies, April 2024
Read the full paper, “Hedging and Tail Risk in Electricity Markets,” by Farhad Billimoria, Jacob Mays and Rahmat Poudineh, originally published by the Oxford Institute for Energy Studies.
