Title: Risk measures forecasting for diversification of trading in electricity markets
Authors: Joanna Janczura - Wroclaw University of Science and Technology (Poland)
Andrzej Puc - Wroclaw University of Science and Technology (Poland) [presenting]
Abstract: The price risk related to trading in electricity markets has increased significantly in recent years, due to the ongoing market liberalization and the growing renewable energy sources production. The limited storability makes the prices much more volatile than in any other market, and they are characterized by unique features like spikes and the possibility of negative values. We derive and evaluate probabilistic forecasts of electricity prices using the ARX-GARCH model combined with the variance-stabilizing transformation using the inverse hyperbolic sine function. Based on these forecasts, we calculate predictions of different risk and profit measures taking into account a possible split of the traded energy among markets. Next, we propose a short-term risk management strategy for an electricity supplier/consumer, that utilizes diversification of the markets for electricity trade. Strategies aiming at risk minimization, profit maximization or finding optimal trade-off between risk and return are applied to the German and Polish electricity markets. The obtained results show that diversifying the markets at which electricity is traded leads to improvement in the objective strategy.