Structuring Bilateral Energy Contract Portfolios in Competitive Markets

Antonio Alonso-Ayuso (), Nico di Domenica (), Laureano F. Escudero () and Celeste Pizarro ()
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Antonio Alonso-Ayuso: Universidad Rey Juan Carlos
Nico di Domenica: Value Lab.
Laureano F. Escudero: Universidad Rey Juan Carlos
Celeste Pizarro: Universidad Rey Juan Carlos

Chapter Chapter 10 in Stochastic Optimization Methods in Finance and Energy, 2011, pp 203-226 from Springer

Abstract: Abstract A multistage complete recourse model for structuring energy contract portfolios in competitive markets is presented for price-taker operators. The main uncertain parameters are spot price, exogenous water inflow to the hydro system and fuel-oil and gas cost. A mean-risk objective function is considered as a composite function of the expected trading profit and the weighted probability of reaching a given profit target. The expected profit is given by the bilateral contract profit and the spot market trading profit along the time horizon over the scenarios. The uncertainty is represented by a set of scenarios. The problem is formulated as a mixed 0–1 deterministic equivalent model. Only 0–1 variables have nonzero coefficients in the first-stage constraint system, such that the continuous variables only show up in the formulation of the later stages. A problem-solving approach based on a splitting variable mathematical representation of the scenario clusters is considered. The approach uses the twin node family concept within the algorithmic framework presented in the chapter. The Kyoto protocol-based regulations for the pollutant emission are considered.

Keywords: Energy trading contracts portfolio; Stochastic programming; Mean risk; Mixed 0–1 models; Splitting variable; Branch-and-fix coordination (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1007/978-1-4419-9586-5_10

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