Financial Risk Management for Energy Service Project under the Tokyo Emission Trading System

Abstract

Recently, energy service providers(ESP) have increased due to deregulation in the power market. They install energy supply equipment at their own cost and supply the necessary energy to the clients. The Tokyo Metropolitan Government started cap-and-trade program in April 2010. This program caps energy-related carbon dioxide emissions from some 1,330 offices and factories in Tokyo. Then, ESPs have to manage the many risks of energy service project directly linked to the profits. This paper describes the risk analysis and investment optimization for energy service project using financial engineering.