Supplier Strategy And Associated Risks In Deregulated Electric Power Industry

Since Chile became the first country deregulating its electric power industry in 1983, the worldwide electricity market reform has taken place for almost twenty-five years. Most power industries in the world started their reforms from the deregulation of the supply side. Therefore, generation companies usually became the first group of entities who manage their operation, accounting and decision-making independently. Initially generation companies' objective is only to maximize their profit, however, the crisis of California electricity market in 2000 and 2001 arouse great attention to the problem of risk management for electric power corporations.After introducing the risk management, the decision-making of generation companies shifts from a single-objective optimization to a bi-objective optimization. The first objective is maximizing expected profit while the second objective is minimizing the associated risks. The solution of a bi-objective optimization is a curve, namely the Pareto Frontier on a two-dimensional coordinates if regarding the two objectives as the two axes. The location of the solution on the frontier therefore depends on the trade-off between the two objectives, the return and the risk, in other words, depends on risk aversion degree of generating companies. The second chapter constructs a model for this problem by introducing the methods in financial theory.The model in the second chapter has a found basis and fast computation speed, but it also has several limitations. The fist is the difficulty in deciding the risk aversion degree. The second limitation is the neglecting of several important technical and institutional constraints in power industry, which could make the model solution unachievable in practice. In response to these limitations, an efficient frontier model with the practical constraints integrated has been proposed in chapter three.The decision-making process of generating companies can be divided in three stages, the strategic investment decision, the multi-trading decision and the strategic bidding decision. In this aspect, Chapter 2 and Chapter 3 focus on the multi-trading decision, while Chapter 4 and Chapter 5 conduct the strategic bidding decision and investment decision, respectively. For the strategic bidding decision, different clearing/dispatch modes and price-setting methods will directly affects generating companies' returns and risks, and therefore the optimal strategies. Chapter 4 focuses on the analysis of the price-setting problem when dual programming has multiple solutions. For the strategic investment decision, it not only depends on the spot market rules, but also depends on the installed capacity trading rules. Chapter 5 conducts a worldwide summary and discussion for the long-term recourse adequacy ensuring methods.The regulation factor has not been normatively incorporated in the models and analysis in the above four chapters. However, the electricity markets in the world almost all have certain patterns of regulation. The reason is electricity market is close to an oligopoly type of markets. Because of the market power in some of the large participants, they have strong motivation to excise their market power and affect the equilibrium price, in order to get a higher than competitive profit. The incentives of excising market power will be strengthened by some other technical features such as inadequate demand-side response. Therefore, regulation measures will be helpful for the operation stability and risk-reduction of electricity markets, although they interfere with the natural supply-demand equilibrium more or less. Chapter 6 discusses the market power mitigation mechanism in North America, which includes the detection and control for market structure, participant behavior and its possible effects.