A Dutch power retailer hedges its sales commitments in the forwards market, based on its sales channels estimation.
Volumetric risk due to the deviation of actual power demand from forecast can cause under and over hedging situations. Wholesale power price spikes in under-hedging situations can cause huge losses to the energy retailer.
Trading Integral Solutions proposed a hybrid model using historical statistical properties of power prices, combined with supply and demand indicators to produce a reliable short term price forecast. Throughout June 2013 to May 2014, the model predicted 76% of the price spikes that occurred, with a 0.55% error in suggesting a spike occurrence. The predicted spikes allowed traders to turn risk into opportunity.
The detailed hybrid model explanation can be found in the company's website.