Weather Risk Management in Energy Sector: The Polish Case

Abstract

The energy sector is perceived as one of the most exposed sectors to the consequences of weather risk both directly (damages of its infrastructure) and indirectly (frictions to the energy supply−demand balance). The main aim of this paper is to provide an insight into the impact of weather risk on economic activity of companies operating in the energy sector in Poland. The empirical objective is to examine whether energy companies: (i) identify their relevant weather risk exposures; (ii) evaluate the impact of weather risk in the cost-revenues dimension; and (iii) implement weather risk management tools, in this case—weather derivatives. In a methodical context, this study relies on a unique research approach and derives from works that examine companies’ risk disclosures in annual reports, by applying textual content analysis. The results indicate that Polish energy companies recognize the impact of weather risk on their performance, also in the cost-revenues dimension. However, although the reported weather risk management methods were diversified, the examined companies did not use weather derivatives to hedge their weather risk exposures. In the overall dimension, the companies leading with the perception and management of weather risk were diversified regarding performance and market size.

Keywords

• weather risk
• weather derivatives
• weather risk management
• energy sector
• poland