CVaR Based Risk Assessment Of Bidding Strategy For Generation Company

Restructuring of the electricity industry can introduce competition to generation companies, improve running efficiency and optimize collocation of resource. However it will expose the participating companies to physical and financial uncertainties. With competition introduced to the generation side, the generation companies concern about how to gain more profits and try to reduce any unnecessary losses. Generation companies must build optimal bidding strategies to maximize profits when different conditions and situations of generation companies are considered. The paper focuses on the risk of generation company's bidding strategy. Based on the risk management theory, Conditional Value at Risk is used as risk measurement index for generation company in its bidding process.Firstly, this paper gives a comprehensive introduction to characteristics of electricity market, trade model, as well as trade style and market rules of electricity market strategic bidding. And then, the generation cost and the relevant research works in strategic bidding are analyzed.Secondly, the risk management methods of generation companies are discussed, and the bidding strategies of generation companies are also analyzed.Thirdly, the existing research about risk assessment is introduced; the shortcoming of traditional risk measurement is analyzed. And two new methods of risk assessment—Value at Risk (VaR) and Conditional Value at Risk (CVaR) are introduced. Then the shortcomings of VaR are pointed out and the reason that CVaR method can measure risk more effectively is explained.Finally, two risk assessment techniques—Value at Risk(VaR) and Conditional Value at Risk(CVaR) are used as risk measurement index for generation companies in the paper, and two modes are established for the revenue of generation company under Pool and Bilateral. The market price is simulated with Monte-Carlo method. By calculating the generation company's expect profit, VaR and CVaR(under 90% confident level and 95% confidence level) respectively, the generation company's risk under different bidding strategy are analyzed, and the difference between VaR and CVaR methods are compared. Meanwhile, we got CVaR effective frontier curve under 90% and 95% confidence level. Simulation results show that VaR and CVaR method can provide effective indexes of risk assessment for generation companies.