
Forward Hedging and Vertical Integration in Electricity Markets
Chemla, Gilles; Porchet, Arnaud; Touzi, Nizar; Aïd, René (2009), Forward Hedging and Vertical Integration in Electricity Markets, 36th Annual EFA Meeting, 2009-08, Bergen, Norvège
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Type
Communication / ConférenceDate
2009Conference title
36th Annual EFA MeetingConference date
2009-08Conference city
BergenConference country
NorvègePages
29
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Show full item recordAbstract (EN)
This paper analyzes the interactions between vertical integration and (wholesale) spot, forward and retail markets in risk management. We develop an equilibrium model that fits electricity markets well. We point out that vertical integration and forward hedging are two separate levers for demand and spot price risk diversification. We show that they are imperfect substitutes as to their impact on retail prices and agents’ utility because the asymmetry between upstream and downstream segments. While agents always use the forward market, vertical integration may not arise. In addition, in presence of highly risk averse downstream agents, vertical integration may be a better way to diversify risk than spot, forward and retail mar kets. We illustrate our analysis with data from the French electricity market.Subjects / Keywords
producers; hedging; forward; spot; vertical integration; retailers; electricity marketsJEL
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; GoodwillG34 - Mergers; Acquisitions; Restructuring; Corporate Governance
L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L51 - Economics of Regulation
L94 - Electric Utilities
D21 - Firm Behavior: Theory
G13 - Contingent Pricing; Futures Pricing
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