Utilizing the Yangtze River Delta Temperature Index for Financial Risk Management in the Context of Electricity Procurement

Under the ongoing trend of global warming, frequent non-catastrophic meteorological risks such as summer high temperatures are posing challenges to power system stability. Compared with the relatively mature weather derivatives markets abroad, practical applications in China remain exploratory, particularly lacking empirical studies and risk management cases based on typical scenarios. To address this gap, this study develops a comprehensive weather derivatives solution for the power industry based on the newly launched Yangtze River Delta Temperature Index, including the design of a pricing model and standardized index futures. Using summer electricity consumption scenarios of a commercial complex and a high-performance computing center in Shanghai as empirical cases, we demonstrate that going long on the “Yangtze River Delta Monthly Cooling Index” futures can effectively hedge against temperature-driven electricity cost increases. This study confirms that the regional temperature index can serve as an active management tool for non-catastrophic meteorological risks in China, contributing to the practical effectiveness of meteorological finance in serving the real economy.