Economic Performance of Contracts in Electricity Markets: A Fuzzy and Multiple Criteria Approach

In competitive electricity markets, consumers and suppliers are exposed to price risk, quantity risk, and other risks such as credit risk. These risks can be managed through an adequate portfolio of contracts. The goal of the approach proposed is to help a market player to appraise portfolios of contracts from the point of view of the economic performance-which measures the potentiality of gains and the potentiality of losses-taking into account the multidimensional aspect of risk, the vagueness and nuances of the decision maker's preferences, and the different kinds of uncertainties. The three steps proposed are portfolio construction, portfolio evaluation, and portfolio ranking. This requires modeling of uncertainties, contracts, and the decision maker's preferences. The example of a large consumer of electric energy and a comparison with the value-at-risk system are presented. The proposed approach is applied to appraise different strategies for a Swiss utility.