Risk management of power portfolios and valuation of flexibility

Risk management by applying operational flexibility is becoming a key issue for production companies. This paper discusses how a power portfolio can be hedged through its own production assets. In particular we model operational flexibility of a hydro pump storage plant and show how to dispatch it to hedge against adverse movements in the portfolio. Moreover, we present how volume risk, which is not hedgeable with standard contracts from power exchanges, can be managed by an intelligent dispatch policy. Despite the incompleteness of the market we quantify the value of this operational flexibility in the framework of coherent risk measure

Studying the interdependence of contractual and operational flexibilities in the market of specialty chemicals

This paper focuses on the market of specialty chemicals and deals with the joint investigation and valuation of contractual and operational flexibilities from a manufacturers' point of view. In this market, customized services related to research, development and manufacturing of chemicals, intermediates and active pharmaceutical ingredients are offered to a small number of customers. Traditionally, customers are granted a large degree of freedom with respect to demand quantity and time exposing the manufacturer to high uncertainty and financial risk. Using a model-based approach we quantify the effect of this contractual flexibility and relate it to the manufacturing flexibility concerning capacity allocation. Through the valuation of these flexibilities we provide first insights for the manufacturer on which customer requests to accept, how to set up the associated contracts with the customers and how to allocate capacity for a given portfolio of products. (C) 2008 Elsevier B.V. All rights reserved

Studying the interdependence of contractual and operational flexibilities in the market of specialty chemicals

This paper focuses on the market of specialty chemicals and deals with the joint investigation and valuation of contractual and operational flexibilities from a manufacturers' point of view. In this market, customized services related to research, development and manufacturing of chemicals, intermediates and active pharmaceutical ingredients are offered to a small number of customers. Traditionally, customers are granted a large degree of freedom with respect to demand quantity and time exposing the manufacturer to high uncertainty and financial risk. Using a model-based approach we quantify the effect of this contractual flexibility and relate it to the manufacturing flexibility concerning capacity allocation. Through the valuation of these flexibilities we provide first insights for the manufacturer on which customer requests to accept, how to set up the associated contracts with the customers and how to allocate capacity for a given portfolio of products.Supply chain management Production-marketing interface Flexibility Uncertainty

Risk management of power portfolios and valuation of flexibility

ISSN:0171-6468ISSN:1436-630