Shape risk

Forecasted load shape profile (in dark blue) and forward contracts for base load, peak load and several hourly contracts (in orange) bought under the assumption that buying energy on the spot market is cheaper than selling. The remaining (beige) shape exposure cannot be captured by contracts.

Shape risk is a commodity risk resulting if hedging a load profile with standard hedging products having a lower granularity. An electricity provider has produce or buy electricity in advance in order to distribute to its consumers based on forecasts how much energy will be consumed every minute on the following day. Such forecasts are usually based on the average historical consumption of the same set of customers, however, the provider can only produce e.g. only hourly blocks of electricity of 1MWh, and not smaller quantities. There is a certain financial risk that the provider produces too less energy and thus has to buy the remaining power from a market opponent for a high spot price to be able to fulfill the need of its customers.