Generation Asset Allocation Strategies Based On Information Gap Decision Theory

With the restructuring and deregulation of electric power industry, the generation company(Gen Co) is provided with different trading choices to supply electricity. These trading choices have different risk-return characteristics. To achieve a satisfactory risk-return target, the Gen Co should allocate the electricity among these trading choices reasonably. Especially, the risk faced by the Gen Co in the spot market trading is extremely large due to the serious uncertainty in spot market. Under the serious uncertainties in spot market prices,the risk-averse Gen Co usually wants to guarantee a expected profit, while the risk-seeker Gen Co seeks for a windfall higher profit. Faced with serious uncertainties in spot market prices, how to allocate its generation asset reasonably while achieving a satisfactory risk-return target becomes the most important problem that different risk preference Gen Cos have to solve. In this context, this paper develops a non-probabilistic IGDT(Information Gap Decision Theory)-based method for the Gen Co’s generation assets allocation among bilateral contracts, option contracts and spot market, the main works are as follows:Firstly, advantages and disadvantages of the existing risk management methods are analyzed briefly, such as mean-variance method, Conditional Value at Risk(CVa R), robust optimization and so on. IGDT background and its application to electric market are discussed in detail then. It is shown that compared with other risk management methods, the risk factor in the IGDT method is not initially determined and the IGDT method is especially applicable for the decision making in the condition that the information is seriously lacking. The IGDT method can provide new tools and ideas for the generation assets allocation decision and risk evaluation.Secondly, considering serious uncertainties in spot market prices, for the risk-averse Gen Co, a risk management technology based on the Information Gap Decision Theory is proposed to evaluate different generation asset allocation strategies. The IGDT method is used to describe the fluctuation of spot market price around the forecasted price. The largest fluctuation of spot prices when the expected profit can be achieved is defined as the robustness index. Then, a robust model is proposed for risk-averse Gen Co’s generation asset allocation among the spot market, bilateral contracts and put option contracts. Numerical examples are presented to illustrate the reasonableness and effectiveness of the proposed method. It is shown that the proposed method can help the Gen Co to assess the robustness of its generation allocation strategies against spot price fluctuation under different expected profits. The risk-averse Gen Co can thus evaluate different generation allocation strategies and its robustness then employ an appropriate strategy to guarantee its expected profit.Thirdly, for the risk-seeker Gen Co, the minimum fluctuation of spot prices when the expected profit may be achieved is defined as the opportunity index. Then, an opportunistic model based on IGDT is proposed for risk-seeker Gen Co’s generation asset allocation among the spot market, bilateral contracts and call option contracts. The results show that the proposed method can help the Gen Co to assess the windfall higher profit due to unpredicted higher spot prices. The risk-seeker Gen Co can thus evaluate a number of different decisions and select an appropriate strategy to seek its windfall higher profit.