T@R - temperature at risk [electric utility management]

Management often needs one value that monitors adverse effects of weather uncertainty on the portfolio value. The full-scale approach to value the uncertainty of the retail portfolio would be to consider two correlated stochastic processes: power price (P) and load (L). The portfolio uncertainty is calculated by applying the effective volatilities and correlation of P and L plus a cross-period correlation matrix. Here a practitioner faces a real challenge of calculating numerous parameters required by the model. The authors propose a method to overcome this obstacle in the same way as V@R value at risk calculates the market price uncertainty. To this end, they introduce T@R - temperature at risk that measures portfolio or contract value uncertainty with respect to temperature (or weather in general). A wide number of numerical techniques can be used in the proposed methodology for T@R calculation.