Research On Price Risk In Electricity Market And Strategy On Avoiding Risk

Since80s in twenty-century, great changes have taken place in western countries. The concept of deregulation has been proposed in order to enure the process of generation, transmission, dividing in efficient situation. The aim is to promote the development of electricity market. With the development of economy, electricity futures, options were introduced to provide a good way to hedge for participants in electricity market. In China, the consumption of electiricity is huge, so it also needs changes in electricity market operating mechanism. It is crucial to the stability of society especially in China. Based on the NordPool market, this paper made some research on this market to give some suggestions toelectricity genarators.Through the analysis of Nordpool electricity market, it displayed that the market is significant in price-discovering and hedging function. The participant in electricity market can join in to hedge price risk using electiricit derivarives.This paper continued to analyze how to hedge and get hedge ratio. The model of OLS, ECM and ECM-GARCH were used to calculate the hedge ratio and simulate the change of electricity price. The result proved that methods are very useful. The generators can completely understand the characterictics of electricity price. In order to make scientific decision, they should use related econometric model to calculate and make prediction.Finally, electricity generators will make reasonable price to gain more benefit under the policy of introducing competition in China’s trade system. According to the principle of competing, generators will submit the data of load and price based on the predicition. Under the best-response mechanism, generators will adjust their strategies in order to get better results. The generators can use derivarives to hedge price risk in mature market and they also can adjust their price strategy in unmature market. The competiveness and cooperation among generators and the simulation and forecasting of electricity price will be good for them to allocate resource and ensure the benefits.