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Minimizing price risk exposure for deregulated electricity market participants

Galloway, Stuart and Dahal, Keshav and Burt, Graeme and McDonald, James (2004) Minimizing price risk exposure for deregulated electricity market participants. COMPEL: The International Journal for Computation and Mathematics in Electrical and Electronic Engineering, 23 (1). pp. 79-91. ISSN 0332-1649

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Abstract

Market liberalisation has resulted in significant changes not only in the way electricity is traded, but also for the market participants themselves. The bidding behaviour of market participants who are active in a liberalised UK-like market has been modelled. Both operational and technical parameters associated with the market and its participants are accounted for. Explicit characterization of risk (value at risk) is made with respect to market participants and their attitude to trading. Profit maximization strategies for market participants are then developed based on the minimization of price-risk under uncertainty. Results are presented for a selected case study and the effect of alternative strategies is compared. The case study concerns several generators who need to determine what proportion of their production they should sell to the market. The results show that based on cost and price forecasts there is scope for generators to profitably take advantage of both contractual and within-day market trades.