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

Chi Keung Woo; Jay Zarnikau; Asher Tishler; Kang Hua Cao

doi:10.3390/en16010393

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

Chi Keung Woo, Jay Zarnikau, Asher Tishler, Kang Hua Cao^*

^*Corresponding author for this work

Coller School of Management

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

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.

Original language	English
Article number	393
Journal	Energies
Volume	16
Issue number	1
DOIs	https://doi.org/10.3390/en16010393
State	Published - Jan 2023

Funding

Funders	Funder number
Education University of Hong Kong	04564
Faculty of Liberal Arts and Social Sciences, Education University of Hong Kong

Keywords

ERCOT
electricity markets
insurance
retail service provider
spot price spike

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10.3390/en16010393

Cite this

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title = "Insuring a Small Retail Electric Provider{\textquoteright}s Procurement Cost Risk in Texas",

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{\textquoteright}s practical design, pricing, and implementation. As participation in the REP{\textquoteright}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.",

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AB - 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.

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

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