Considering Forward Electricity Prices for a Hydro Power Plant Risk Analysis in the Brazilian Electricity Market

Arthur Lauro, Daniel Kitamura, Waleska Lima, Bruno Dias and Tiago Soares ()
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Arthur Lauro: Electrical Energy Department, Federal University of Juiz de Fora, UFJF, Juiz de Fora 36036-330, Brazil
Daniel Kitamura: Electrical Energy Department, Federal University of Juiz de Fora, UFJF, Juiz de Fora 36036-330, Brazil
Waleska Lima: Electrical Energy Department, Federal University of Juiz de Fora, UFJF, Juiz de Fora 36036-330, Brazil
Bruno Dias: Electrical Energy Department, Federal University of Juiz de Fora, UFJF, Juiz de Fora 36036-330, Brazil
Tiago Soares: Center for Power and Energy Systems, Institute for Systems and Computer Engineering, Technology and Science, 4200-465 Porto, Portugal

Energies, 2023, vol. 16, issue 3, 1-13

Abstract: The Brazilian Power System is mainly composed of renewable generation from hydroelectric and wind. Hence, spot and forward electricity prices tend to represent the inherently stochastic nature of these resources, while risk management is a measure taken by agents, especially hydro power plants (HPPs) to hedge against deep financial losses. A HPP goal is to maximize its profit considering uncertainties in forward electricity prices, spot prices, and generation scaling factor (GSF) for years ahead. Therefore, the objective of this work is to simulate the real decision-making process of a HPP, where they need to have a perspective of the forward market and future spot price assessment to negotiate forward electricity contracts. To do so, the present work models the uncertainty in electricity forward prices via two-stage stochastic programming, assessing the benefits of the stochastic solution in comparison to the deterministic one. In addition, different risk aversion levels are assessed using conditional value at risk (CVaR). An important conclusion is that the results show that the greater the HPP risk aversion is, the greater the energy selling via electricity forward contracts. Moreover, the proposed model has benefits in comparison to a deterministic approach.

Keywords: decision making under uncertainty; electricity forward price; stochastic programming; risk management; renewable energy sources (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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