Most energy trading and risk management (ETRM) systems have applied concepts and models that were originally developed on Wall Street. These useful tools manage risks associated with financial products or even physical commodities prior to actual...
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Most energy trading and risk management (ETRM) systems have applied concepts and models that were originally developed on Wall Street. These useful tools manage risks associated with financial products or even physical commodities prior to actual delivery/generation, and are capable of providing a forward-looking view into, and helping to manage, out-months portfolio risks in terms of standard financial instruments. Unfortunately, these models generally do not accurately reflect the complex nature of production/generation assets or retail obligations, as the representation of generation assets as financial instruments results in a systematic bias and yields inconsistent valuations and risk measures. These modeling limitations are exposed because of the mismatch between the physical attributes of generation and retail load, and their representation as financial instruments combined with the use of forward prices instead of spot prices.
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