Asset valuation and risk management in electric power markets

In a restructured power market, generation asset valuation is a very important issue. In generation scheduling, by committing certain generating units, we transform various types of fuel into electricity for sale to the electricity market. The profit in this process is the value of generating units. The value of a generating unit is not only decided by its physical characteristics, but also strongly impacted by the way it is committed and by the way market is evolving. There are two types of generation asset valuation: one is the valuation based on the daily scheduled generation, and the other is the valuation based on the available capacity of generating units. Value at Risk (VAR) could be used to assess the risk involved in both types of asset valuation.; In a restructured power market, units should be operated based on market prices. Price based unit commitment (PBUC) is to study how to optimize generation resources to reach the maximum profit. An efficient PBUC will maximize the value of generation assets. There are a lot of products in power market. To arbitrage between energy and ancillary service can improve the profitability of generation assets. Power market is closely related to fuel markets (for example gas market), emission allowance market and steam market. There exist many arbitrage opportunities between power market and these markets, which would also increase the value of generation assets. To identify these opportunities, PBUC is an indispensable tool.; In this study, formulation of PBUC is proposed and efficient solution methodology is discussed. PBUC is then applied to identify possible arbitrage opportunities. On the basis of PBUC and arbitrage, frameworks of generation asset valuation are proposed and Value at Risk is applied to assess the associated risks.