Hedging strategies for load-serving entities in wholesale electricity markets
© 2017 IEEE. Load-serving entities which procure electricity from the wholesale electricity market to service end-users face significant quantity and price risks due to the volatile nature of electricity demand and quasi-fixed residential tariffs at which electricity is sold. This paper investigates...
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| Format: | Article |
| Language: | English |
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Institute of Electrical and Electronics Engineers (IEEE)
2021
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| Online Access: | https://hdl.handle.net/1721.1/137408 |
| _version_ | 1826217484140675072 |
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| author | Zhou, Datong P. Dahleh, Munther A. Tomlin, Claire J. |
| author2 | Massachusetts Institute of Technology. Laboratory for Information and Decision Systems |
| author_facet | Massachusetts Institute of Technology. Laboratory for Information and Decision Systems Zhou, Datong P. Dahleh, Munther A. Tomlin, Claire J. |
| author_sort | Zhou, Datong P. |
| collection | MIT |
| description | © 2017 IEEE. Load-serving entities which procure electricity from the wholesale electricity market to service end-users face significant quantity and price risks due to the volatile nature of electricity demand and quasi-fixed residential tariffs at which electricity is sold. This paper investigates strategies for load serving entities to hedge against such price risks. Specifically, we compute profit-maximizing portfolios of forward contract and call options as a function of uncertain aggregate user demand and wholesale electricity prices. We compare the profit to the case of Demand Response, where users are offered monetary incentives to temporarily reduce their consumption during periods of supply shortages. Using smart meter data of residential customers in California, we simulate optimal portfolios and derive conditions under which Demand Response outperforms call options and forward contracts. Our analysis suggests that Demand Response becomes more competitive as wholesale electricity prices increase. |
| first_indexed | 2024-09-23T17:04:23Z |
| format | Article |
| id | mit-1721.1/137408 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T17:04:23Z |
| publishDate | 2021 |
| publisher | Institute of Electrical and Electronics Engineers (IEEE) |
| record_format | dspace |
| spelling | mit-1721.1/1374082022-10-03T10:11:11Z Hedging strategies for load-serving entities in wholesale electricity markets Zhou, Datong P. Dahleh, Munther A. Tomlin, Claire J. Massachusetts Institute of Technology. Laboratory for Information and Decision Systems © 2017 IEEE. Load-serving entities which procure electricity from the wholesale electricity market to service end-users face significant quantity and price risks due to the volatile nature of electricity demand and quasi-fixed residential tariffs at which electricity is sold. This paper investigates strategies for load serving entities to hedge against such price risks. Specifically, we compute profit-maximizing portfolios of forward contract and call options as a function of uncertain aggregate user demand and wholesale electricity prices. We compare the profit to the case of Demand Response, where users are offered monetary incentives to temporarily reduce their consumption during periods of supply shortages. Using smart meter data of residential customers in California, we simulate optimal portfolios and derive conditions under which Demand Response outperforms call options and forward contracts. Our analysis suggests that Demand Response becomes more competitive as wholesale electricity prices increase. 2021-11-04T19:44:06Z 2021-11-04T19:44:06Z 2017-12 2019-05-14T16:44:56Z Article http://purl.org/eprint/type/ConferencePaper https://hdl.handle.net/1721.1/137408 Zhou, Datong P., Dahleh, Munther A. and Tomlin, Claire J. 2017. "Hedging strategies for load-serving entities in wholesale electricity markets." en 10.1109/cdc.2017.8263665 Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Institute of Electrical and Electronics Engineers (IEEE) arXiv |
| spellingShingle | Zhou, Datong P. Dahleh, Munther A. Tomlin, Claire J. Hedging strategies for load-serving entities in wholesale electricity markets |
| title | Hedging strategies for load-serving entities in wholesale electricity markets |
| title_full | Hedging strategies for load-serving entities in wholesale electricity markets |
| title_fullStr | Hedging strategies for load-serving entities in wholesale electricity markets |
| title_full_unstemmed | Hedging strategies for load-serving entities in wholesale electricity markets |
| title_short | Hedging strategies for load-serving entities in wholesale electricity markets |
| title_sort | hedging strategies for load serving entities in wholesale electricity markets |
| url | https://hdl.handle.net/1721.1/137408 |
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