Hedgingstrategier för elhandelsbolag på den svenska elmarknaden efter elområdesuppdelning

The Swedish electricity market was divided into four bidding areas on 2011.11.01. The division gave implications to the trade of electricity in the spot market as well as the financial market. Four bidding areas create smaller markets and coupled with an unbalance of production and consumption in the areas, the liquidity on contracts for area price risk management has decreased drastically. This especially renders a problem in bidding area Malmö, or SE4, located in the south of Sweden, because of a large surplus of consumption in comparison to production. The report is written with the purpose to clarify how an electricity trading company best can hedge its commitment towards the consumers in the Malmö bidding area. The main focus with the report is to find and evaluate hedging alternatives, such as proxy hedges, in terms of cost and risk and compare them to the natural hedge, which is to buy contracts with the area price in SE4 as the underlying asset. In order to do the analysis the report first provides a walkthrough of the electricity market with emphasis on congestion, congestion management and how the price is determined. Due to the lack of history on data with several bidding areas in Sweden a statistical analysis of that period doesn’t capture various scenarios of the fundamentals affecting the prices. Analysis has therefore been done on a period between 2007.01.01 and 2011.11.01 where a main challenge has been to analyze what the price in SE4 would have been in a situation with four bidding areas. First we analyzed quoted prices of contracts and constructed SE4 prices as well as real SE4 prices. Then we made analysis on risk and reward on different hedging strategies where hedging in bidding area Copenhagen, DK2 and bidding area Stockholm, SE3 were the main objects. Results showed that SE3 would be more profitable in all seasons but that the loss in a worst case scenario could be substantial. Under some fundamental conditions the risk is larger and a portion hedged in DK2 could be used to decrease the variance and one could also hedge in SE4 to lessen the exposure