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Mitigation of price spike in unit commitment: A probabilistic approach

Author

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  • Samudio-Carter, Cristóbal
  • Vargas, Alberto
  • Albarracín-Sánchez, Ricardo
  • Lin, Jeremy

Abstract

During the last decade, electricity markets regulators in Latin American countries have been concerned about the increasing costs of electrical energy. To this end, regulatory changes have been introduced to develop new criteria for price sanction, which demonstrates the need to study this problem at the fundamental level. Until now, the alternatives proposed and implemented have been aimed at modifying the way in sanctioning short-term energy prices, moving away from the rigorous application of the marginal cost theory. This situation can be considered as the evidence that the characteristics of Latin American electricity markets differ significantly from the ideal conditions that are necessary for the application of this conceptual framework. This paper presents a methodology for establishing a metric for energy tariff's risk which is used in a procedure to mitigate price spikes in the process of the Short-Term Operational Planning (Unit Commitment). The proposed methodology considers the most widely-used mechanisms for the sanction of real-time (spot) market prices in Latin America, which are based on the variable production costs. The results from the application of this methodology to a test power system with hydrothermal and non-conventional (wind) energy resources show an effective reduction of price volatility.

Suggested Citation

  • Samudio-Carter, Cristóbal & Vargas, Alberto & Albarracín-Sánchez, Ricardo & Lin, Jeremy, 2019. "Mitigation of price spike in unit commitment: A probabilistic approach," Energy Economics, Elsevier, vol. 80(C), pages 1041-1049.
    • Handle: RePEc:eee:eneeco:v:80:y:2019:i:c:p:1041-1049
    DOI: 10.1016/j.eneco.2019.01.029
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    References listed on IDEAS

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    1. Weron, Rafal, 2000. "Energy price risk management," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 285(1), pages 127-134.
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    Cited by:

    1. Andr s Oviedo-G mez & Sandra Milena Londo o-Hern ndez & Diego Fernando Manotas-Duque, 2021. "Electricity Price Fundamentals in Hydrothermal Power Generation Markets Using Machine Learning and Quantile Regression Analysis," International Journal of Energy Economics and Policy, Econjournals, vol. 11(5), pages 66-77.

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    More about this item

    Keywords

    Electricity markets; Imperfect competition; Marginal costs; Market power; Price volatility; Unit commitment;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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