Hedging Strategy and Electricity Contract Engineering - IFOR

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x Contents ¡ £ ¢ ¡ ¢ ¡ ¢ ¢ ¢ ¢ ¢ ¡ ¢ ¡ ¢ £ ¡ ¢ ¢ ¡ ¢ ¡ £ ¢ ¡ ¢ ¡ ¢ ¡ ¢ ¢ ¢ ¢ ¢ ¡ ¢ ¡ ¢ £ ¡ ¢ ¢ ¡ ¢ ¡ £ ¢ ¡ 2.8 Power exchanges and pricing mechanisms . . . . . . . . . . . 31 2.9 Price dynamic . . . . . . . . . . . . . . . . . . . . . . . . . . 35 2.10 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3. Risk management 45 3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 3.2 Motivation of and introduction to risk management . . . . . . 46 3.3 The risks in the electricity market . . . . . . . . . . . . . . . 47 3.4 Traditional risk management models . . . . . . . . . . . . . . 50 3.5 The need for a new risk measure . . . . . . . . . . . . . . . . 58 3.6 Multi period risk management . . . . . . . . . . . . . . . . . 65 3.7 Valuation models . . . . . . . . . . . . . . . . . . . . . . . . 66 3.8 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 4. Contract engineering 75 4.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 4.2 Gas turbine . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 4.3 Hydro storage plant . . . . . . . . . . . . . . . . . . . . . . . 80 4.4 Coal plant and oil plant . . . . . . . . . . . . . . . . . . . . . 86 4.5 Nuclear plant . . . . . . . . . . . . . . . . . . . . . . . . . . 90 4.6 Run river plant, wind plant and solar plant . . . . . . . . . . . 92 4.7 All production plants . . . . . . . . . . . . . . . . . . . . . . 93 4.8 Transmission lines . . . . . . . . . . . . . . . . . . . . . . . 95 4.9 Real option theory . . . . . . . . . . . . . . . . . . . . . . . . 96 4.10 Value of different production plants . . . . . . . . . . . . . . 98 4.11 Engineering of contracts . . . . . . . . . . . . . . . . . . . . 100 4.12 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Contents xi 5.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 5.2 Traditional hedging . . . . . . . . . . . . . . . . . . . . . . . 104 5.3 Relevance for electricity hedging . . . . . . . . . . . . . . . . 109 5.4 Best Hedge . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 6. Power portfolio optimization 115 6.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 6.2 Traditional power portfolio optimizations . . . . . . . . . . . 116 6.3 Power portfolio optimization in general . . . . . . . . . . . . 117 6.4 Modeling of plants and their operational flexibility . . . . . . 121 6.5 Analysis of optimal dispatch strategy . . . . . . . . . . . . . . 130 6.6 Power portfolio optimization with CVaR . . . . . . . . . . . . 143 6.7 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 7. Case study 169 7.1 Efficient frontier . . . . . . . . . . . . . . . . . . . . . . . . . 177 7.2 Spot position . . . . . . . . . . . . . . . . . . . . . . . . . . 179 7.3 Hedging value of water . . . . . . . . . . . . . . . . . . . . . 180 7.4 Value decomposition . . . . . . . . . . . . . . . . . . . . . . 183 7.5 Dispatch strategy . . . . . . . . . . . . . . . . . . . . . . . . 186 7.6 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 8. Conclusions 191 A. Proofs 193 Bibliography 210
Page 1: Diss. ETH No. 14727 Hedging Strateg
Page 5 and 6: Abstract This thesis studies risk m
Page 7 and 8: Zusammenfassung Die vorliegende Sch
Page 9: Contents Acknowledgements ¡ ¢ ¡
Page 13 and 14: List of Figures 2.1 Illustration of
Page 15 and 16: List of Figures xv 7.6 Marginal val
Page 17 and 18: List of Tables 2.1 Spot market bid.
Page 19 and 20: Chapter 1 Introduction 1.1. Motivat
Page 21 and 22: 1.3 Structure of the thesis 5 hedge
Page 23 and 24: Chapter 2 The electricity market 2.
Page 25 and 26: 2.1 Overview 9 Generation ¥ Distri
Page 27 and 28: 2.2 Liberalization of the electrici
Page 29 and 30: duction cost Marginal pro © 2.3 Su
Page 31 and 32: 2.4 Transmission costs 15 10 Peak l
Page 33 and 34: 2.4 Transmission costs 17 destinati
Page 35 and 36: 2.5 Demand 19 2.5. Demand Compared
Page 37 and 38: 2.6 Special characteristics of elec
Page 39 and 40: 2.7 Electricity contracts 23 tions.
Page 41 and 42: 0& K $ 0& K K % + $ 2.7 Electricity
Page 43 and 44: 2.7 Electricity contracts 27 2.7.2.
Page 45 and 46: 04 04 2.7 Electricity contracts 29
Page 47 and 48: 2.8 Power exchanges and pricing mec
Page 49 and 50: 2.8 Power exchanges and pricing mec
Page 51 and 52: S 0 eH aIKJ 2.9 Price dynamic 35 To
Page 53 and 54: 2.9 Price dynamic 37 400 2000 350 1
Page 55 and 56: 2.9 Price dynamic 39 simple sinus f
Page 57 and 58: 2.9 Price dynamic 41 1800 1800 1600
Page 59 and 60: 2.10 Summary 43 To deal with the un
Page 61 and 62:
Chapter 3 Risk management 3.1. Over
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3.3 The risks in the electricity ma
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3.3 The risks in the electricity ma
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3.4 Traditional risk management mod
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Page 71 and 72:
Page 73 and 74:
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l H xg yLihkjml f 3.5 The need for
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3.5 The need for a new risk measure
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R S x GaRKV is convex and continuou
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R P 3.6 Multi period risk managemen
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“ “ “ 3.7 Valuation models 67
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3.7 Valuation models 69 storability
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3.7 Valuation models 71 by introduc
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“ 3.7 Valuation models 73 formula
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Chapter 4 Contract engineering 4.1.
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4.2 Gas turbine 77 2000 1800 1600 1
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4.2 Gas turbine 79 220 200 Capped l
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4.3 Hydro storage plant 81 facilita
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¢ 4.3 Hydro storage plant 83 I k L
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x k xœk x «k š xœk 0 š x «k 0
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4.4 Coal plant and oil plant 87 4.4
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4.4 Coal plant and oil plant 89 cor
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4.5 Nuclear plant 91 of 1000 MW. Ov
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4.7 All production plants 93 possib
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4.8 Transmission lines 95 Unit type
Page 113 and 114:
4.9 Real option theory 97 The scien
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4.10 Value of different production
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4.12 Summary 101 like the capped sp
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Chapter 5 Hedging strategies 5.1. O
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È È È È È 5.2 Traditional hedg
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É È É È Ì 5.2 Traditional hedg
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5.3 Relevance for electricity hedgi
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5.4 Best Hedge 111 that the expecte
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5.4 Best Hedge 113 that they alread
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Chapter 6 Power portfolio optimizat
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6.3 Power portfolio optimization in
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6.3 Power portfolio optimization in
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6.4 Modeling of plants and their op
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x k xëk x ìk Ü xë k 0Ü x ìk 0
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Page 145 and 146:
gìi Û S í SÜ D í DÜ I a í I
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õ õ 6.5 Analysis of optimal dispa
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õ Ü r á 6.5 Analysis of optimal
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¢ é á 6.5 Analysis of optimal di
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ìj Û 1 bë j Ý?Ü j 1Ü á?á@á
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u ¦ j Ü è è aëj ¦ bë j u j
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õ õ õ á á 6.5 Analysis of opti
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6.6 Power portfolio optimization wi
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è á 6.6 Power portfolio optimizat
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x Û x p Ü x c Ý Û xë1 Ü á@á
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Page 167 and 168:
ááá ááá ááá ááá ááá
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F Û 0Ü 3Ý í è F Û 0Ü 1Ý?Ü
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ö 6.6 Power portfolio optimization
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ö Ü 6.6 Power portfolio optimizat
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ö S kã j á 6.6 Power portfolio o
Page 179 and 180:
¢ ¢ 6.6 Power portfolio optimizat
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î yú1 î é yú1 á ¢ 6.6 Power
Page 183 and 184:
6.7 Summary 167 opportunity set wou
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Chapter 7 Case study In this chapte
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171 3200 140 3000 2800 120 2600 240
Page 189 and 190:
S7 D7 min 8 0 if S i or D p otherwi
Page 191 and 192:
175 Production Spot price Demand [C
Page 193 and 194:
7.1 Efficient frontier 177 lG x 6 9
Page 195 and 196:
7.2 Spot position 179 of the old po
Page 197 and 198:
7.3 Hedging value of water 181 The
Page 199 and 200:
7.4 Value decomposition 183 expecte
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MWh CHF/ P 7.4 Value decomposition
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7.6 Summary 187 2500 2000 Dispatch
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7.6 Summary 189 We have quantified
Page 207 and 208:
Chapter 8 Conclusions The special c
Page 209 and 210:
a4q V a4q G 1 V H a4q 6 Appendix A
Page 211 and 212:
8 _ 195 Proof The results follow im
Page 213 and 214:
g b4i d G9:7j b4 j G 1 9j7j H b4 j
Page 215 and 216:
Ax 3 V AxK1 G 1 V H AxK2 V b 1 G 1
Page 217 and 218:
Bibliography [ABA98] [AD80] [ADEH97
Page 219 and 220:
Bibliography 203 [BS73] [BS98] [BT0
Page 221 and 222:
Bibliography 205 [GR92] H. Gravelle
Page 223 and 224:
Bibliography 207 [Mer76] R. C. Mert
Page 225 and 226:
Bibliography 209 [SC89] [Sch90] [Sc
Page 227:
Curriculum Vitae Personal Data Name
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