Managing electricity reliability risk through the futures markets

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In competitive electricity markets, the vertically integrated utilities that were responsible for ensuring system reliability in their own service territories, or groups of territories, often cease to exist. Typically, the burden falls to an independent system operator (ISO) to insure that enough ancillary services (AS) are available for safe, stable, and reliable operation of the grid, typically defined, in part, as compliance with officially approved engineering specifications for minimum levels of AS. In order to characterize the behavior of market participants (generators, retailers, and an ISO) in a competitive electricity market with reliability requirements, we model a spot market for ... continued below

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Siddiqui, Afzal S. October 1, 2000.

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Description

In competitive electricity markets, the vertically integrated utilities that were responsible for ensuring system reliability in their own service territories, or groups of territories, often cease to exist. Typically, the burden falls to an independent system operator (ISO) to insure that enough ancillary services (AS) are available for safe, stable, and reliable operation of the grid, typically defined, in part, as compliance with officially approved engineering specifications for minimum levels of AS. In order to characterize the behavior of market participants (generators, retailers, and an ISO) in a competitive electricity market with reliability requirements, we model a spot market for electricity and futures markets for both electricity and AS. By assuming that each participant seeks to maximize its expected utility of wealth and that all markets clear, we solve for the optional quantities of electricity and AS traded in each market by all participants, as well as the corresponding market-clearing prices. We show that future prices for both electricity and AS depend on expectations of the spot price, statistical aspects of system demand, and production cost parameters. More important, our model captures the fact that electricity and AS are substitute products for the generators, implying that anticipated changes in the spot market will affect the equilibrium futures positions of both electricity and AS. We apply our model to the California electricity and AS markets to test its viability.

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OSTI as DE00783497

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  • Institute for Operating Research and the Management Sciences (INFORMS) Annual Meeting, San Antonio, TX (US), 11/04/2000--11/08/2000

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  • Report No.: LBNL--47645
  • Grant Number: AC03-76SF00098
  • Office of Scientific & Technical Information Report Number: 783497
  • Archival Resource Key: ark:/67531/metadc715355

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  • October 1, 2000

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  • Sept. 29, 2015, 5:31 a.m.

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  • Sept. 1, 2016, 6:52 p.m.

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Siddiqui, Afzal S. Managing electricity reliability risk through the futures markets, article, October 1, 2000; California. (digital.library.unt.edu/ark:/67531/metadc715355/: accessed August 21, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.