EPNES: Foreward Contracts, Multisettlement Equilibrium and Risk Management in Competitive Electricity Markets

University Of California-Berkeley, Berkeley CA

Investigators

Abstract

Forward contracts arid financial risk management instruments are essential elements of competitive electricity markets. They mitigate market power, suppress price volatility and ensure system reliability through market mechanisms. The design and study of such mechanisms in the context of electricity requires an interdisciplinary approach that capitalizes on developments in economics, operations research, and financial engineering while adapting and extending the existing knowledge in these areas to match the physical realities of electricity systems. This research project will develop such an interdisciplinary approach by bringing together a research team with expertise in power economics, optimization and financial mathematics. The project consist of three main technical components: Analysis of two settlement electricity markets through sequential Nash equilibrium models on DC power networks; Development of computational methods for calculating realistic two settlement equilibrium models as simultaneous optimization problems subject to equilibrium constraints; and Development of pricing methodologies for specific forward contracts and options under stochastic price movements. This research will help address technical and policy issues prompted by the restructuring of the electricity industry and will train graduate students participating in the research to cope with the multidisciplinary challenges facing that industry. The computational techniques developed under this project will be tested on realistic commercial models of the California market. New knowledge resulting from this project will be integrated through teaching modules into a broad spectrum of graduate and undergraduate courses offered to industrial engineering and to electrical engineering students.