Risk hedging against the fuel price fluctuation in energy service business

Masaaki Bannai, Yasushi Tomita, Yasushi Ishida, Takahiko Miyazaki, Atsushi Akisawa, Takao Kashiwagi

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

Energy service business, or energy service company (ESCO), is expanding among industrial users as a means of energy saving. The ESCO business normally tends to become a long-term operation. During the operation, fluctuations of fuel and electricity costs significantly impact on the stability of the profit from ESCO business. Therefore, it is essential to reduce the risk of fuel and electricity cost fluctuations. Generally, a transaction called "financial derivative" is used as a measure of hedging against the fuel price fluctuation. In the case of ESCO business, it is necessary to manage the risk of both electricity and fuel price fluctuations because the variation in electricity price strongly affects the profit from ESCO as that in fuel price does. In this paper, the stabilization of the ESCO profit using financial derivatives was discussed by quantitative analyses of the actual data from existing plants. Case studies revealed that the appropriate volume of the fuel derivative implementation was less than a half of the fuel consumption at the ESCO facilities, and it ranged from 5% to 50%.

Original languageEnglish
Pages (from-to)2051-2060
Number of pages10
JournalEnergy
Volume32
Issue number11
DOIs
Publication statusPublished - Jan 1 2007
Externally publishedYes

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Industry
Electricity
Profitability
Derivatives
Fuel consumption
Costs
Energy conservation
Stabilization

All Science Journal Classification (ASJC) codes

  • Civil and Structural Engineering
  • Building and Construction
  • Pollution
  • Mechanical Engineering
  • Industrial and Manufacturing Engineering
  • Electrical and Electronic Engineering

Cite this

Bannai, M., Tomita, Y., Ishida, Y., Miyazaki, T., Akisawa, A., & Kashiwagi, T. (2007). Risk hedging against the fuel price fluctuation in energy service business. Energy, 32(11), 2051-2060. https://doi.org/10.1016/j.energy.2007.05.003

Risk hedging against the fuel price fluctuation in energy service business. / Bannai, Masaaki; Tomita, Yasushi; Ishida, Yasushi; Miyazaki, Takahiko; Akisawa, Atsushi; Kashiwagi, Takao.

In: Energy, Vol. 32, No. 11, 01.01.2007, p. 2051-2060.

Research output: Contribution to journalArticle

Bannai, M, Tomita, Y, Ishida, Y, Miyazaki, T, Akisawa, A & Kashiwagi, T 2007, 'Risk hedging against the fuel price fluctuation in energy service business', Energy, vol. 32, no. 11, pp. 2051-2060. https://doi.org/10.1016/j.energy.2007.05.003
Bannai, Masaaki ; Tomita, Yasushi ; Ishida, Yasushi ; Miyazaki, Takahiko ; Akisawa, Atsushi ; Kashiwagi, Takao. / Risk hedging against the fuel price fluctuation in energy service business. In: Energy. 2007 ; Vol. 32, No. 11. pp. 2051-2060.
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