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Futures markets are increasingly relevant for trading electric energy as they help to hedge the volatility of the pool prices. In this paper, we analyze the effect of such futures markets on the investment decisions of a strategic electricity producer. To this end, we propose a bilevel model whose upper-level problem represents the investment and offering actions of the producer, and whose multiple lower-level problems represent the clearing of both the futures markets and the pool under different operating conditions. Such model is equivalent to a mathematical program with equilibrium constraints that can be recast as a tractable mixed-integer linear programming problem and that allows assessing the impact of the futures markets on the investment decisions of a strategic producer.
Date of Publication: Aug. 2012