Advanced Search
MyIDEAS: Login to save this paper or follow this series

Long-term risk management for utility companies: the next challenges

Contents:

Author Info

  • René Aïd

    ()
    (EDF R&D - EDF, FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris Dauphine - Paris IX - CREST - EDF R&D)

Registered author(s):

    Abstract

    Since the energy markets liberalisation at the beginning of the 1990s in Europe, electricity monopolies have gone through a profound evolution process. From an industrial organisation point of view, they lost their monopoly on their historical business, but gained the capacity to develop in any sector. Companies went public and had to upgrade their financial risk management process to international standards and implement modern risk management concepts and reporting processes (VaR, EaR...). Even though important evolutions have been accomplished, we argue here that the long-term risk management process of utility companies has not yet reached its full maturity and is still facing two main challenges. The first one concerns the time consistency of long-term and mid-term risk management processes. We show that consistencies issues are coming from the different classical financial parameters carrying information on firms' risk aversion (cost of capital and short-term risk limits) and the concepts inherited from the monopoly period, like the loss of load value, that are still involved in the utility company decision-making process. The second challenge concerns the need for quantitative models to assess their business model. With the deregulation, utilities have to address the question of their boundaries. Although intuition can provide insights on the benefits of some firm structures like vertical integration, only sound and tractable quantitative models can bring answers to the optimality of different possible firm structures.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://hal.archives-ouvertes.fr/docs/00/41/93/10/PDF/hltrm08-ijtaf-hal.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number hal-00409030.

    as in new window
    Length:
    Date of creation: 30 Dec 2008
    Date of revision:
    Handle: RePEc:hal:wpaper:hal-00409030

    Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00409030/en/
    Contact details of provider:
    Web page: http://hal.archives-ouvertes.fr/

    Related research

    Keywords: electricity markets; risk management; investment decision; long-term risk;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Green, Richard, 2001. "Failing Electricity Markets: Should we Shoot the Pools?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3010, C.E.P.R. Discussion Papers.
    2. Dyner, Isaac & Larsen, Erik R., 2001. "From planning to strategy in the electricity industry," Energy Policy, Elsevier, Elsevier, vol. 29(13), pages 1145-1154, November.
    3. Jean-Charles Rochet & Stéphane Villeneuve, 2005. "Corporate portfolio management," Annals of Finance, Springer, Springer, vol. 1(3), pages 225-243, 08.
    4. Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, Elsevier, vol. 30(4), pages 1831-1849, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00409030. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.