Risk assessment and hedging are essential jobs for generation companies in a deregulated environment. An engineering risk and financial risk combined evaluation method and corresponding hedging strategy are proposed. The risk of contract unfulfilling facing generation companies is studied， and reserve capacity is used as the hedging strategy. The hedging effect under different proportions of reserve capacity is investigated. The Canadian Alberta electricity market is used as a study case. Simulation results show that reserve capacity can achieve combined hedging by changing net shortage capacity.