The ability for market participants to hedge their power price exposure remains limited in the SEM, with a lack of forward products available for trading. This means that market participants are often left fully exposed to the spot market – meaning power contracts for almost immediate delivery – but the prices of these contracts can be very volatile.
However, there is a way around this. When parties do not have access to the forward products they need to hedge their price exposure; proxy hedging can be used. Proxy hedging in the electricity market is when a trader, in the absence of an available forward power contract, buys a closely related commodity instead. In this week’s blog, we discuss this topic further.
