Short-term risk management of electricity retailers under rising shares of decentralized solar generation

Marianna Russo (), Emil Kraft, Valentin Bertsch () and Dogan Keles

Energy Economics, 2022, vol. 109, issue C

Abstract: Electricity retailers face increasing uncertainty due to the ongoing expansion and self-consumption of unpredictable distributed generation in the residential sector. We analyze how increasing levels of households’ solar PV self-generation affect the short-term decision-making and associated risk exposure of electricity retailers in the German day-ahead and intraday markets. First, we develop a stochastic model accounting for correlations between solar load, residual load and price in sequentially nested wholesale spot markets across seasons and type of day. Second, we develop a computationally tractable two-stage stochastic mixed-integer optimization model to investigate the trading portfolio and risk optimization problem faced by retailers. Through conditional value-at-risk we assess the retailers’ profitability and risk exposure to different levels of PV self-generation by assuming different retail tariff schemes. We find risk-hedging trading strategies and tariffs to have greater impact in Summer and with low levels of residual load in the system, i.e. when the solar generation uncertainty affects more the households’ demand to be served and the wholesale spot prices. The study is innovative in unveiling the potential of dynamic electricity tariffs, which are indexed to spot prices, to sustain a high penetration of renewable energy source while promoting a fair risk sharing between retailers, regular consumers and prosumers (consumers with self-generation). Our findings have implications for electricity retailers facing load and revenue risks in wholesale spot markets, likewise for regulators and policy-makers interested in electricity market design.

Keywords: Electricity markets; Stochastic modeling; Stochastic programming; Retailers’ uncertainty modeling; Risk management (search for similar items in EconPapers)
JEL-codes: C10 C50 G10 Q42 Q48 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Short-term risk management for electricity retailers under rising shares of decentralized solar generation (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:109:y:2022:i:c:s0140988322001323

DOI: 10.1016/j.eneco.2022.105956

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