Optimization of Electricity Retailer's Contract Portfolio Subject to Risk Preferences

When an electricity retailer faces volume risk in meeting load and spot price risk in purchasing from the wholesale market, conventional risk management optimization methods can be quite inefficient. For the management of an electricity contract portfolio in this context, we develop a multistage sto...

Full description

Saved in:
Bibliographic Details
Published in:IEEE transactions on power systems 2010-02, Vol.25 (1), p.117-128
Main Authors: Kettunen, J., Salo, A., Bunn, D.W.
Format: Article
Language:English
Subjects:
Contracts
Costs
Electric power generation
Electricity
Electricity market
Energy management
Forward contracts
Load
Markets
Optimization
Optimization methods
Portfolios
Power system modeling
retailer's contract portfolio optimization
Risk
Risk management
Sensitivity analysis
stochastic optimization
Stochastic processes
Studies
Uncertainty
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:When an electricity retailer faces volume risk in meeting load and spot price risk in purchasing from the wholesale market, conventional risk management optimization methods can be quite inefficient. For the management of an electricity contract portfolio in this context, we develop a multistage stochastic optimization approach which accounts for the uncertainties of both electricity prices and loads, and which permits the specification of conditional-value-at-risk requirements to optimize hedging across intermediate stages in the planning horizons. Our experimental results, based on real data from Nordpool, suggest that the modeling of price and load correlations is particularly important. The sensitivity analysis is extended to characterize the behavior of retailers with different risk attitudes. Thus, we observe that a risk neutral retailer is more susceptible to price-related than load-related uncertainties in terms of the expected cost of satisfying the load, and that a risk averse retailer is especially sensitive to the drivers of the forward risk premium.
ISSN:0885-8950
1558-0679
DOI:10.1109/TPWRS.2009.2032233