Estimation of Weather and Energy Price Relationship and Impact on Load Following Cash Flows

Weather is a significant driver of daily natural gas and electricity price moves in various North American markets. Weather drives retail energy consumption, which in turn drives market prices through a supply and demand process. The combined volume and price uncertainty is one of the main financial risks for an energy retailer like Direct Energy – we call this “load following risk.” The project will seek to improve the estimation of this risk for a number of settings and also to provide a better estimation of the range and probability of possible outcomes at the level of a complex portfolio of retail load obligations. The relationship between weather and prices is continually evolving, and varios models underlying this relationship will be tested. Finally, a better understanding of the risk mitigation effects of hedges such as weather insurance or natural gas storage will be sought.

Faculty Supervisor:

Tony Ware

Student:

Partner:

Direct Energy

Discipline:

Business

Sector:

Mining

University:

University of Calgary

Program: