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A risk management model for trading electricity in the spot market and through bilateral contracts

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5 Author(s)
Luís Ramos ; Department of Electrical Engineering and Automation at ISEL - Lisbon Engineering Superior Institute, Rua Conselheiro Emídio Navarro, 1, 1950-062, Portugal ; Jorge de Sousa ; Tânia Silva ; Rui Jerónimo
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This paper presents a model for evaluating the optimal strategy of a generation company (Genco) that trades electricity in a competitive market, where two possible energy transaction markets are considered: the spot market and the bilateral contract market. In this context, the Genco tries to maximize its profits and to minimize the corresponding risks by selecting the optimal balance between the two possible transaction markets (spot and bilateral). The risk considered has different sources, named risk factors, which are divided into two categories: price and volume risk factors. Numerical results are obtained using Monte Carlo simulation implemented in Matlab, which is applied to Genco that holds a diversified portfolio of generation technologies, for a time horizon of one year. The results show that the Genco can profitably take advantage of both bilateral contracts and spot market trades.

Published in:

2010 7th International Conference on the European Energy Market

Date of Conference:

23-25 June 2010