Risk management for generation asset portfolios

Summary form only given. Managing a generation asset portfolio essentially involves procuring fuel and selling power. It is therefore convenient to consider generation assets as spread options that can be analyzed using standard techniques from financial markets. In this paper, the authors discuss some of these techniques as they apply to managing the risk associated with generation asset portfolios. This typically involves the use of "delta-hedging" to conform to value at risk (VAR) limits. They also discuss the potential shortcomings and challenges that associated with the application of these techniques in power markets.