Short-Term Electric Power Trading Strategies for Portfolio Optimization

Authors: Wang, Chung-Hsiao1; Min, K. Jo2

Source: The Engineering Economist, Volume 53, Number 4, October 2008 , pp. 365-379(15)

Publisher: Taylor and Francis Ltd

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Abstract:

In recent years, there have been significant expansions of the wholesale electricity market where a utility can sell its excess power day-ahead or real-time. In spite of these expansions, traders still in practice make often subjective and haphazard trading decisions based on their experiences and intuitions on profits and financial risks. Under these circumstances, in this article, we formulate an electric power portfolio model to quantify profits and financial risks in a single framework, taking the risks of forced outages and price differentials between day-ahead and real-time markets into account. Within our framework, the optimal trading decisions are obtained from maximizing the profit while minimizing the financial risk of the portfolio. Numerical analyses of examples show that trading decisions based on our approach significantly improve commonly used strategies by the traders.

Document Type: Research article

DOI: 10.1080/00137910802482295

Affiliations: 1: E.ON U.S. LLC, Louisville, Kentucky, USA 2: Department of Industrial and Manufacturing Systems Engineering, Iowa State University, Ames, Iowa, USA

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