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Title: Managing electricity reliability risk through the futures markets

Abstract

In competitive electricity markets, the vertically integrated utilities that were responsible for ensuring system reliability in their own service territories, or groups of territories, often cease to exist. Typically, the burden falls to an independent system operator (ISO) to insure that enough ancillary services (AS) are available for safe, stable, and reliable operation of the grid, typically defined, in part, as compliance with officially approved engineering specifications for minimum levels of AS. In order to characterize the behavior of market participants (generators, retailers, and an ISO) in a competitive electricity market with reliability requirements, we model a spot market for electricity and futures markets for both electricity and AS. By assuming that each participant seeks to maximize its expected utility of wealth and that all markets clear, we solve for the optional quantities of electricity and AS traded in each market by all participants, as well as the corresponding market-clearing prices. We show that future prices for both electricity and AS depend on expectations of the spot price, statistical aspects of system demand, and production cost parameters. More important, our model captures the fact that electricity and AS are substitute products for the generators, implying that anticipated changes in themore » spot market will affect the equilibrium futures positions of both electricity and AS. We apply our model to the California electricity and AS markets to test its viability.« less

Authors:
Publication Date:
Research Org.:
Lawrence Berkeley National Lab. (LBNL), Berkeley, CA (United States)
Sponsoring Org.:
USDOE Assistant Secretary for Energy Efficiency and Renewable Energy (US)
OSTI Identifier:
783497
Report Number(s):
LBNL-47645
R&D Project: 673332; TRN: AH200128%%57
DOE Contract Number:  
AC03-76SF00098
Resource Type:
Conference
Resource Relation:
Conference: Institute for Operating Research and the Management Sciences (INFORMS) Annual Meeting, San Antonio, TX (US), 11/04/2000--11/08/2000; Other Information: PBD: 1 Oct 2000
Country of Publication:
United States
Language:
English
Subject:
29 ENERGY PLANNING, POLICY AND ECONOMY; COMPLIANCE; ELECTRIC POWER INDUSTRY; PRICES; RELIABILITY; RETAILERS; SPECIFICATIONS; SPOT MARKET; COMPETITION; AUXILIARY SYSTEMS; MATHEMATICAL MODELS; CALIFORNIA; ANCILLARY SERVICES COMPETITVE ELECTRICTY MARKETS PRICING FUTURES CONTRACTS.

Citation Formats

Siddiqui, Afzal S. Managing electricity reliability risk through the futures markets. United States: N. p., 2000. Web.
Siddiqui, Afzal S. Managing electricity reliability risk through the futures markets. United States.
Siddiqui, Afzal S. 2000. "Managing electricity reliability risk through the futures markets". United States. https://www.osti.gov/servlets/purl/783497.
@article{osti_783497,
title = {Managing electricity reliability risk through the futures markets},
author = {Siddiqui, Afzal S},
abstractNote = {In competitive electricity markets, the vertically integrated utilities that were responsible for ensuring system reliability in their own service territories, or groups of territories, often cease to exist. Typically, the burden falls to an independent system operator (ISO) to insure that enough ancillary services (AS) are available for safe, stable, and reliable operation of the grid, typically defined, in part, as compliance with officially approved engineering specifications for minimum levels of AS. In order to characterize the behavior of market participants (generators, retailers, and an ISO) in a competitive electricity market with reliability requirements, we model a spot market for electricity and futures markets for both electricity and AS. By assuming that each participant seeks to maximize its expected utility of wealth and that all markets clear, we solve for the optional quantities of electricity and AS traded in each market by all participants, as well as the corresponding market-clearing prices. We show that future prices for both electricity and AS depend on expectations of the spot price, statistical aspects of system demand, and production cost parameters. More important, our model captures the fact that electricity and AS are substitute products for the generators, implying that anticipated changes in the spot market will affect the equilibrium futures positions of both electricity and AS. We apply our model to the California electricity and AS markets to test its viability.},
doi = {},
url = {https://www.osti.gov/biblio/783497}, journal = {},
number = ,
volume = ,
place = {United States},
year = {Sun Oct 01 00:00:00 EDT 2000},
month = {Sun Oct 01 00:00:00 EDT 2000}
}

Conference:
Other availability
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