There has been an increasing number of papers in Water Resources Research on financial instruments to manage climatic variability. Hamilton et al.  introduce a new index insurance instrument to help hydropower producers who depend on snow melt to cope with the risks of variable snowpack. This is a critical risk in snow-dominated regions such as California, where a significant fraction of the streamflow every year comes from a small number of large winter storms that do not always occur.
The authors use analysis of the relationship between snowpack and revenues to build a risk model. They examine the financial structure of a hydropower company and the possible attitudes of risk managers to debt and revenue risk. This can limit the extent to which a loss of revenue caused by drought reduces the long-term financial viability of a utility, improving outcomes for the public.
Citation: Hamilton, A. L., Characklis, G. W., & Reed, P. M. . Managing financial risk trade‐offs for hydropower generation using snowpack‐based index contracts. Water Resources Research, 56, e2020WR027212. https://doi.org/10.1029/2020WR027212
―Jim Hall, Editor, Water Resources Research
Except where otherwise noted, images are subject to copyright. Any reuse without express permission from the copyright owner is prohibited.
#Hedge #Risk #Reduced #Snowpack #Hydropower