Risk Management Tools for Wind Power Trades: Weather Derivatives on Forecast Errors

Chapter
First Online:
Part of the Energy Systems book series (ENERGY)

Abstract

One of the most difficult issues for using wind power in practice is that the power output largely depends on the wind condition, and as a result, the future output may be volatile or uncertain. Therefore, the forecast of power output is considered important and is key to electric power generating industries making the wind power electricity market work properly. However, the use of forecasts may cause other problems due to “forecast errors”. The objective of this chapter is to summerize conventional tools to manage such risks in the wind power electricity market. In particular, we focus on possible insurance claims or the so-called weather derivatives, which are contracts written on weather indices whose values are constructed from weather data.

Keywords

Loss Function Forecast Error Payoff Function Wind Farm Call Option 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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Notes

Acknowledgments

The author would like to thank H. Fukuda, R. Tanikawa, and N. Hayashi from ITOCHU Techno-Solutions Corporation for their helpful comments and discussions.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Graduate School of Business SciencesUniversity of TsukubaBunkyo-kuJapan

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