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Insuring a Small Retail Electric Provider’s Procurement Cost Risk in Texas

Author

Listed:
  • Chi-Keung Woo

    (Department of Asian and Policy Studies, Education University of Hong Kong, Hong Kong, China)

  • Jay Zarnikau

    (Department of Economics, University of Texas at Austin, Austin, TX 78712, USA)

  • Asher Tishler

    (Coller School of Management, Tel Aviv University, Tel Aviv 69978, Israel)

  • Kang Hua Cao

    (Department of Economics, Hong Kong Baptist University, Kowloon Tong, Hong Kong, China)

Abstract

Motivated by the relatively infrequent but very large price spikes in the day-ahead and real-time energy markets operated by the Electric Reliability Council of Texas, this paper proposes an insurance that a small and risk-averse retailer in Texas (i.e., a retail electric provider (REP)) may buy to prevent financial insolvency caused by inadequate risk management. It also demonstrates the insurance’s practical design, pricing, and implementation. As participation in the REP’s procurement auction is voluntary, the insurance is mutually beneficial for the REP and the insurance seller. Hence, the proposed insurance is a newly developed wholesale market product that deserves consideration by REPs in Texas and competitive retailers elsewhere.

Suggested Citation

  • Chi-Keung Woo & Jay Zarnikau & Asher Tishler & Kang Hua Cao, 2022. "Insuring a Small Retail Electric Provider’s Procurement Cost Risk in Texas," Energies, MDPI, vol. 16(1), pages 1-12, December.
    • Handle: RePEc:gam:jeners:v:16:y:2022:i:1:p:393-:d:1019043
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    References listed on IDEAS

    as
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