Theoretical Studies On Risk Modeling Of Forward Contracts In Electricity Markets

The worldwide restructuring and deregulation of electric power industry have been directed at increasing competition in the supply of electricity. This has been accompanied by a commoditization of electricity with the emergence of electricity markets, along with risks to market participants that they did not have to face during the regulated era. In a competitive electricity market, forward contracts can be used as an effective instrument for risk management and bilateral transaction. This dissertation addresses issues of risk modeling of electricity forward contracts in a competitive electricity industry. The main research work includes: probabilistic forecasting of short-run marginal cost of power generation, simulating and decision-making for electricity forward contracts trading, risk modeling in optional electricity forward contracts, game theoretical modeling of generation-side market with contracts for differences, etc.Firstly, using the technologies of probabilistic production simulation, two methods, namely the simplified method and the refined method, are developed for estimating probability distribution function of short-run marginal cost of power generation. The simplified method is introduced based on the concept of marginal generating unit and the assumption of continuous probability distribution of the available capacity, while the refined method is derived from the precise definition of marginal cost and the discrete nature of the available capacity distribution. In these two methods, not only the uncertainties of generating unit forced outage and load demand forecast are considered, but the uncertainty related to fuel price can also be easily incorporated. Furthermore, it is showntheoretically that the simplified method is not totally reasonable, especially when the forced outage rate of generating units is relatively small, for example when short-term forecasting is considered, the errors may be considerable compared with the refined method. It is also shown that the present England and Wales pool approach used to assess the day-ahead pool purchase price (PPP) can be viewed as a reasonable approximation of the refined method. Due to the fact that the marginal cost of power generation can be further used for electricity pricing, this part of work lays a foundation for probabilistic forecasting of generation price and risk modeling of electricity forward contracts, and is therefore one of the key contributions of this dissertation.Secondly, two kinds of forward contracts, namely contracts between consumers and utilities, and contracts between independent power producers (IPPs) and utilities, are considered in this paper. Decision-making models are developed for trading these contracts before the delivery times. Some characteristics in forward contracts trading as means of risk hedging, information revealing and 'profiteering' are demonstrated from theoretical analysis. Rational strategies on contracted energy selections of consumers and IPPs are also given in this paper. Numerical simulations show the reasonableness of the proposed methods.Thirdly, due to the fact that the electricity spot markets have not been fully developed in China, this paper introduces two kinds of optional forward contracts, which may be practically useful for consumers, IPPs and utilities in China. Risk modeling in pricing of these contracts is performed based on the uncertainties of utilities' marginal generating cost, and the proposed models are tested by an application to IEEE-RTS system. In addition, this paper presents a method to model the consumers' demand uncertainties in forward contracts between utilities and consumers. Case studies show that this land of contract gives the consumer an incentive to reduce demand uncertainties so as to increase his profit, which makes theconsumption and generation of electric power more efficient. The effects of demand uncertainty on the contract terms are also discussed in this paper.Fourthly, a more fair and flexible optional forward contract is developed based on...