EconPapers    
Economics at your fingertips  
 

Mitigating market risk for wind power providers via financial risk exchange

Hunyoung Shin and Ross Baldick

Energy Economics, 2018, vol. 71, issue C, 344-358

Abstract: When wind power producers (WPPs) participate in forward electricity markets, they become exposed to real-time (RT) market risks from uncertain generation outputs and highly volatile RT market prices. This joint volume-price risk causes a risk-averse WPP to sell less energy than the expected generation, which discourages the WPP from fully enjoying the benefits of participating in forward electricity markets. In order to mitigate volume-price risks from the RT market, this paper proposes a financial instrument referred to as a risk exchange (REX) that enables the WPPs to trade random net payments from uncertain prices and generation outputs, after the day-ahead market is cleared. A negotiation for the REX is modeled by a bargaining game based on a conflict of interest in determining the REX amounts. Both Nash and Rubinstein's bargaining game models are addressed to analyze the REX bargaining game. It is shown that there is a unique outcome of the game which can be achieved by using a pure strategy. Moreover, a central planner who aims to minimize the aggregated risks of the WPPs is explored. Numerical examples demonstrate that the REX is able to reduce RTM risks successfully and encourages the WPPs to sell more energy to the DAM. Since the REX is not limited by physical constraints in power systems, it can be traded by the WPPs exposed to different locational marginal prices (LMPs).

Keywords: Electricity markets; Wind power; Risk hedging; Bargaining game (search for similar items in EconPapers)
JEL-codes: C78 D81 Q41 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988318300707
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:71:y:2018:i:c:p:344-358

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2018-11-07
Handle: RePEc:eee:eneeco:v:71:y:2018:i:c:p:344-358