Expected Shortfall as a Tool Supporting Risk Management in Energy Company

Liberalization and demonopolisation of the Polish energy market have resulted in changes in the organizational structure of energy companies and changes in their activities related to the purchase or sale of electricity on the wholesale market. The development of the wholesale electricity market contributed to an increase in the risk of electricity price changes, which might have a significant impact on the economic performance of electricity generation and electricity trading companies. Therefore, the power companies that are members of the Polish Power Exchange (POLPX) are increasingly interested in the use of new tools supporting electricity price risk management process. This article investigates the possibility to use of the Expected Shortfall (ES) for risk measurement connected with hourly electricity price volatility on the Day-Ahead Market (DAM) of the Polish Power Exchange in the period of 28.10.2017 - 24.03.2018. Dynamic Quantile Test (DQT) is conducted in order to point out the best SARIMA-HYGARCH model used in the estimation of electricity price risk associated with the energy companies activities. Expected Shortfall is an important tool supporting risk management in the energy companies as it provides additional information about the average loss associated with the electricity sales or purchase on the POLPX, assuming that the loss is exceeding the acceptable risk level by the decision-maker.