Hedging new electricity market risks in the concentrated market-places in the European Union

There is an on-going liberalization and deregulation process in the electricity markets worldwide. This process has created new actors and new risks in the market. The risks mainly consist of the price risk, counterparty risk and the system risk. In this study, the authors have compared the hedging methods offered by two electricity pools in the European Union, the Nordic Electricity Exchange Nord Pool and the Electricity Pool of the United Kingdom. Hedging methods available at the moment are the financial instruments (futures, forwards and options), special hedge contracts, clearing house services and security payments. The principle of hedging is similar in both the studied electricity pools, but methods do vary. This is mainly due to the fact that these pools are of a different nature.