Risk measures and management in the energy sector

Energy sector is facing a great level of importance in the globalized economy of industrial countries. Many actors are involved: producers, consumers, institutions, regulators and traders. Risk is present in each of the levels involving the various actors. This chapter explores the most common notions of risk used in this sector, describes the major sources of uncertainty from which risk is originating, and presents the modeling of risk in two relevant energy applications. Specific problems related to the use of forward markets for hedging against the increase in electricity prices or capacity power production planning are described and commented with the related models. Issues that arise from the use of stochastic programming methodology are reviewed, followed by a discussion of progress that is being made using such models.