Electricity pool prices: long-term uncertainty characterization for futures-market trading and risk management

A J Conejo, F J Nogales (), M Carrión and J M Morales
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A J Conejo: University of Castilla—La Mancha
F J Nogales: Universidad Carlos III de Madrid
M Carrión: University of Castilla—La Mancha
J M Morales: University of Castilla—La Mancha

Journal of the Operational Research Society, 2010, vol. 61, issue 2, 235-245

Abstract: Abstract Organized trading for electricity includes both the pool and the futures market. Pool prices are volatile while the prices of the futures-market products are comparatively more stable. Thus, futures-market products constitute hedging instruments to reduce the risk suffered by any market agent. Electricity market agents engage in both pool and futures market transactions seeking to maximize their respective profits/utilities for a given risk level on profit variability. To make informed decisions, the market agent must gather as much accurate information as possible on the pool prices covering the whole time horizon spanned by the futures-market product. This paper provides a novel technique to represent conveniently the uncertainty associated with pool prices during long- or medium-term horizons through a set of scenarios, that is, pool price realizations. The proposed technique uses the prices of the futures-market products as long-term explanatory variables and exploits the short-term structure of the pool prices.

Keywords: electricity pool prices; year-ahead forecasting; forward trading; futures prices; scenarios (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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DOI: 10.1057/jors.2008.140

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