An analysis of basis risk in the nordic electricity marketand how it can be hedged

2009

Masteroppgave i økonomi og administrasjon - Universitetet i Agder 2009 In the Nordic electricity market, electricity producers face the risk of substantial price variations across time and space. The prices across different geographical areas can differ due to transmission congestion. To hedge against the risk of price variations across time and space the market participants can use forward or future contracts and Contracts for Difference (CfDs), which are listed at Nord Pool. CfDs are forward contracts on the spread between a particular area price and the system price. This paper provides an analysis of the basis risk in the Nordic electricity market, how the electricity producers can hedg…