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Evaluation of Different Hedging Strategies for Commodity Price Risks of Industrial Cogeneration Plants

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  • Palzer, Andreas

    ()
    (Fraunhofer Institute for Solar Energy Systems ISE)

  • Westner, Günther

    ()
    (E.ON Energy Projects GmbH)

  • Madlener, Reinhard

    ()
    (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))

Abstract

In this paper, we design and evaluate eight different strategies for hedging commodity price risks of industrial cogeneration plants. Price developments are parameterized based on EEX data from 2008-2011. The probability distributions derived are used to determine the value-at-risk (VaR) of the individual strategies, which are in a final step combined in a mean-variance portfolio analysis for determining the most efficient hedging strategy. We find that the strate-gy adopted can have a marked influence on the remaining price risk. Quarter futures are found to be particularly well suited for reducing market price risk. In contrast, spot trading of CO2 certificates is found to be preferable compared to forward market trading. Finally, portfolio optimization shows that a mix of various hedging strategies can further improve the profita-bility of a heat-based cogeneration plant.

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Bibliographic Info

Paper provided by E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) in its series FCN Working Papers with number 2/2012.

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Length: 39 pages
Date of creation: Mar 2012
Date of revision: Mar 2013
Handle: RePEc:ris:fcnwpa:2012_002

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Keywords: Commodity price risk; Cogeneration; Hedging; mean-variance portfolio optimization;

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Citations

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Cited by:
  1. Achtnicht, Martin & Madlener, Reinhard, 2014. "Factors influencing German house owners' preferences on energy retrofits," Energy Policy, Elsevier, vol. 68(C), pages 254-263.
  2. Rohlfs, Wilko & Madlener, Reinhard, 2012. "Assessment of Clean-Coal Strategies: The Questionable Merits of Carbon Capture-Readiness," FCN Working Papers 18/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  3. Rohlfs, Wilko & Madlener, Reinhard, 2011. "Multi-Commodity Real Options Analysis of Power Plant Investments: Discounting Endogenous Risk Structures," FCN Working Papers 22/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  4. Sorda, Giovanni & Madlener, Reinhard, 2012. "Cost-Effectiveness of Lignocellulose Biorefineries and their Impact on the Deciduous Wood Markets in Germany," FCN Working Papers 8/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  5. Dergiades, Theologos & Madlener, Reinhard & Christofidou, Georgia, 2012. "The Nexus between Natural Gas Spot and Futures Prices at NYMEX: Do Weather Shocks and Non-Linear Causality in Low Frequencies Matter?," FCN Working Papers 17/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Sep 2013.

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