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Electricity retail contracting under risk-aversion

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  • Downward, Anthony
  • Young, David
  • Zakeri, Golbon

Abstract

Risk has always been a dominant part of financial decision making in any industry. Recently models, tools and computational techniques have been developed so that we can effectively incorporate risk in optimal decision policies. The focus of this paper is on electricity markets, where much of the inherent risk falls on the retail sector. We introduce a three-stage model of an electricity market where firms can choose to enter the retail market, then enter into retail contracts, and finally purchase electricity in a wholesale market to satisfy their contracts. We explicitly assume that firms are risk-averse in this model. We demonstrate how the behaviour of firms change with risk-aversion, and use the example of an asset-swap policy over a transmission network to demonstrate the importance of modeling risk-aversion in determining policy outcomes.

Suggested Citation

  • Downward, Anthony & Young, David & Zakeri, Golbon, 2016. "Electricity retail contracting under risk-aversion," European Journal of Operational Research, Elsevier, vol. 251(3), pages 846-859.
    • Handle: RePEc:eee:ejores:v:251:y:2016:i:3:p:846-859
    DOI: 10.1016/j.ejor.2015.11.040
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    References listed on IDEAS

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    Cited by:

    1. Dagoumas, Athanasios S. & Polemis, Michael L., 2017. "An integrated model for assessing electricity retailer’s profitability with demand response," Applied Energy, Elsevier, vol. 198(C), pages 49-64.
    2. Parlane, Sarah & Ryan, Lisa, 2020. "Optimal contracts for renewable electricity," Energy Economics, Elsevier, vol. 91(C).
    3. Michael L. Polemis, 2018. "A mixed integer linear programming model to regulate the electricity sector," Letters in Spatial and Resource Sciences, Springer, vol. 11(2), pages 183-208, July.
    4. Edward J. Anderson & Andrew B. Philpott, 2019. "Forward Commodity Trading with Private Information," Operations Research, INFORMS, vol. 67(1), pages 58-71, January.
    5. Anthony Downward & Subeh Chowdhury & Chapa Jayalath, 2019. "An investigation of route-choice in integrated public transport networks by risk-averse users," Public Transport, Springer, vol. 11(1), pages 89-110, June.
    6. Gärttner, Johannes & Flath, Christoph M. & Weinhardt, Christof, 2018. "Portfolio and contract design for demand response resources," European Journal of Operational Research, Elsevier, vol. 266(1), pages 340-353.

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