Comparison of Electricity Spot Price Modelling and Risk Management Applications

Abstract

In dealing with sharp changes in electricity prices, contract planning is considered as a vital risk management tool for stakeholders in deregulated power markets. In this paper, dynamics of spot prices in Turkish electricity market are analyzed, and predictive performance of several models are compared, i.e., time series models and regime-switching models. Different models for derivative pricing are proposed, and alternative portfolio optimization problems using mean-variance optimization and conditional value at risk (CVaR) are solved. Expected payoff and risk structure for different hedging strategies for a hypothetical electricity company with a given demand are analyzed. Experimental studies show that regime-switching models are able to capture electricity characteristics better than their standard counterparts. In addition, evaluations with various risk management models demonstrate that those models are highly competent in providing an effective risk control practice for electricity markets.

Stochastic approach to model spot price and value forward contracts on energy markets under uncertainty

“…A recent comparison of electricity spot price modelling for pricing of derivatives and risk management was performed by Canakoglu and Adiyeke (2020).…”

Operation Strategy of Electricity Retailers Based on Energy Storage System to Improve Comprehensive Profitability in China’s Electricity Spot Market

“…They conducted research on the quotation and operation optimization in the DA market and RT market and studied the impacts of market uncertainty on VPP operation by using the CVAR method. In paper [5], the authors focused on the Turkish electricity spot market, and they established a multistage risk model combined with the price prediction model, which can dynamically manage portfolios in order to reduce risks. In literature [6,7], in the two-stage dispatching control of the DA market and RT market, power was dispatched through VPP and micro-grid, and a risk preference model utilizing the CVaR method was established.…”

Multi-time scale trading profit model of pumped storage power plant for electricity market

“…Gao et al (2019) used the conditional value at risk (CVaR) theory to study the uncertainty of virtual power plant (VPP) market prices and proposed a bi-level model to optimize the operating strategies in the day-ahead and realtime markets. Canakoglu and Adiyeke, (2020) proposed a variety of pricing models for power products based on price uncertainty. The portfolio problem of mean-square optimization and conditional Value at Risk was solved by combining price forecasting and risk management.…”