Evaluation of different hedging strategies for commodity price risks of industrial cogeneration plants

Palzer, Andreas; Westner, Günther; Madlener, Reinhard

doi:10.1016/j.enpol.2013.03.006

Cited by 7 publications

(1 citation statement)

References 70 publications

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“…Based on this finding, this paper assumes that derivatives and other financial tools will be used only for risk mitigation purposes, as it seems to be the strategy employed by the biggest US companies. The literature reports and discusses risk management strategies for foreign exchange rates, such as the works of Hsu et al (2009), Afza and Alam (2011), Disatnik et al (2014), Kouvelis et al (2013), Palzer et al (2013), Zhou and Wang (2013), Chen and King (2014), Fabling and Grimes (2014) and Rampini et al (2014).…”

Section: Innovation and Financial Riskmentioning

confidence: 99%

Financial exposure and technology innovation investment

Quintella

Silva

Almeida³

et al. 2017

ARLA

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Purpose The purpose of this paper is to identify, measure and optimise financial risk and its effect on returns from innovation projects on an accrual basis and on a cash basis in a commodity industry. Design/methodology/approach A hypothetical case study, based on a real case, of a petrochemical commodity industry in Brazil was analysed with commodities pricing rules based on actual contracts. Earnings at risk (EaR) and cash flow at risk (CFaR) measures were applied, as well as a metric proposed in this paper called cash balance at risk (CBaR). Findings The paper demonstrates that financial risk measurement and optimisation are important issues in the decision-making process in the petrochemical industry. EaR, CFaR and CBaR measures are helpful when used alongside standard procedures of project evaluation. The findings also show that innovative technologies, in certain conditions, may act as “natural hedging”. It was found that the time delay between revenues and expenses leads to financial risk exposure to changes in prices and foreign exchange rates. Projects can use financing and hedging to boost their results. Originality/value An innovative project was compared with an expansion project in a petrochemical industry. A model for petrochemical commodities contract pricing was added in an analysis that included financing and hedging. The findings in this paper suggest that it is important to consider financial risk measures in project evaluation.

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