Master Thesis: Capacity Mechanisms in Power Markets - Hedging Strategies and Risk Management

To ensure security of supply the German government is planning to implement a capacity mechanism (Kapazitätsreserve) for the electricity market. This reserve comprises plants that may not partake in regular energy markets but are kept on standby to be dispatched in the event of a shortage of supply in the electricity market. If the reserve is dispatched the plants are allowed to charge a fixed price per MWh which is designed to be prohibitively high (several thousand euros) and which is charged to those participants of the energy system that caused the shortage. These high prices should act as incentives for companies to avoid imbalances in demand and supply. Payments due to shortages in the above scheme represent a major risk to companies. Therefore risk mitigation strategies become relevant. Finding and evaluating such strategies is the topic of this thesis.