Hedging Hourly Shaping Risks in Power Portfolio

Abstract Book of the 11th International Conference on Management, Economics and Finance

Year: 2026

[PDF]

Hedging Hourly Shaping Risks in Power Portfolio

Ritesh Kumar

ABSTRACT:

Although electricity price forecasting has been modeled in many studies, most works have focused on monthly or block-level forecasts, hence leaving the price dynamics and associated risks at the hourly level largely unexplored. This paper discusses the Hourly Shaping Risks within power portfolios arising because of the mismatch between the block-traded instruments and the hourly settlement of power markets. The key drivers of hourly price shapes include load fluctuations, generation mix variability, renewable intermittency, and transmission constraints. In developing a hedging framework for addressing such challenges, a model is proposed to quantify and mitigate shaping risks by capturing the dominant variation in hourly price structure. The methodology incorporates simulation of hourly shapes from market-observed block prices, construction of shape libraries, and determination of optimal hedge instruments associated with the principal components of portfolio risk. Empirical results using the ERCOT market data demonstrate that the proposed model effectively captures the shape-driven variations and offsets about 67% of the shaping losses through hedging. These results show the value of incorporating hourly granularity and statistical dimension reduction in the management of power portfolio risk

Keywords: Shaping Risks, Power Hourly Price, Hedge, Simulation, Power Portfolio, Principal Component Analysis