A Model for Hedging Load and Price Risk in the Texas Electricity Market

Coulon, Michael; Powell, Warren B.; Sircar, Ronnie

doi:10.2139/ssrn.2137949

Cited by 5 publications

(1 citation statement)

References 22 publications

(23 reference statements)

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“…The share of demand covered by wind energy in European Union has reached 10.4% in 2016 (Nghiem and Mbistrova, 2017). Since demand has a direct relationship with market price (Coulon et al, 2013), it is important to account for the statistical characteristics of wind power, when devising an optimal hedging strategy. It is also suggested in Bunn and Chen (2013) that wind power brings radical market structure changes and, therefore, has to be accounted for in the hedging decision analysis.…”

Section: Hedging Decision In a Symmetric Oligopolymentioning

confidence: 99%

The impact of generator market power on the electricity hedge market

et al. 2020

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The incentive of an electricity generating firm with market power to influence the market price depends strongly on the volume the firm has pre-sold in the forward, or hedge, markets. However, the choice of hedge level may be a strategic decision in itself. In the normal case where participants in the hedge market cannot observe the hedge position of dominant generators, we show that the optimal choice of hedging for a dominant generator facing a linear demand curve is an all-or-nothing decision and there is no equilibrium level of hedging in pure strategies. This outcome may explain an observed lack of hedge market liquidity in wholesale electricity markets where individual generators have substantial market power. We perform the analysis for the monopoly and oligopoly cases and extend it for realistic cost functions and various degrees of competitiveness in the market. These results contribute to the extensive body of research on the price formation and strategic behavior in electricity forward and spot markets, as well as providing implications for transparency initiatives in market design. * Dr Biggar is with the Australian Competition and Consumer Commission (ACCC). The views expressed here are those of the authors and are not necessarily the views of the ACCC.

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Section: Hedging Decision In a Symmetric Oligopolymentioning

confidence: 99%

The impact of generator market power on the electricity hedge market

et al. 2020

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A Survey of Commodity Markets and Structural Models for Electricity Prices

Carmona

Coulon

2013

Quantitative Energy Finance

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Abstract. The goal of this survey is to review the major idiosyncrasies of the commodity markets and the methods which have been proposed to handle them in spot and forward price models. We devote special attention to the most idiosyncratic of all: electricity markets. Following a discussion of traded instruments, market features, historical perspectives, recent developments and various modeling approaches, we focus on the important role of other energy prices and fundamental factors in setting the power price. In doing so, we present a detailed analysis of the structural approach for electricity, arguing for its merits over traditional reduced-form models. Building on several recent articles, we advocate a broad and flexible structural framework for spot prices, incorporating demand, capacity and fuel prices in several ways, while calculating closed-form forward prices throughout.

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