Hedging strategies for load-serving entities in wholesale electricity markets
Name
1703.00976.pdf
Description
Submitted version
Size
1.39 MB
Format
Adobe PDF
Checksum (MD5)
fe0a967e81eceaa71dc0c2858dee44e3
Author(s)
Zhou, Datong P.
Dahleh, Munther A.
Tomlin, Claire J.
Date Issued
December 2017
Publisher
Institute of Electrical and Electronics Engineers (IEEE)
Citation
Zhou, Datong P., Dahleh, Munther A. and Tomlin, Claire J. 2017. "Hedging strategies for load-serving entities in wholesale electricity markets."
Version
Original manuscript
Abstract
© 2017 IEEE. Load-serving entities which procure electricity from the wholesale electricity market to service end-users face significant quantity and price risks due to the volatile nature of electricity demand and quasi-fixed residential tariffs at which electricity is sold. This paper investigates strategies for load serving entities to hedge against such price risks. Specifically, we compute profit-maximizing portfolios of forward contract and call options as a function of uncertain aggregate user demand and wholesale electricity prices. We compare the profit to the case of Demand Response, where users are offered monetary incentives to temporarily reduce their consumption during periods of supply shortages. Using smart meter data of residential customers in California, we simulate optimal portfolios and derive conditions under which Demand Response outperforms call options and forward contracts. Our analysis suggests that Demand Response becomes more competitive as wholesale electricity prices increase.
MIT Department
Massachusetts Institute of Technology. Laboratory for Information and Decision Systems
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1109/cdc.2017.8263665
