Hedging Strategy and Electricity Contract Engineering - IFOR

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xiv List of Figures ¤ 3.1 VaR and CVaR. . . . . . . . . . . . . . . . . . . . . . . . . . 56 3.2 QQ-plot. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 4.1 Hourly prices. . . . . . . . . . . . . . . . . . . . . . . . . . . 77 4.2 Hourly payoff of gas turbine. . . . . . . . . . . . . . . . . . . 78 4.3 Capped spot price. . . . . . . . . . . . . . . . . . . . . . . . 79 4.4 Gas spot price. . . . . . . . . . . . . . . . . . . . . . . . . . 79 4.5 Hydro storage plant. . . . . . . . . . . . . . . . . . . . . . . . 83 4.6 Dispatch of hydro storage plant. . . . . . . . . . . . . . . . . 84 4.7 Difference between at- and in-the-money options. . . . . . . . 92 4.8 Generation costs. . . . . . . . . . . . . . . . . . . . . . . . . 99 4.9 Ranking of plants. . . . . . . . . . . . . . . . . . . . . . . . . 100 5.1 Price of a European call option. . . . . . . . . . . . . . . . . . 106 5.2 Illustration of best hedge procedure. . . . . . . . . . . . . . . 112 6.1 Schematic figure of portfolio optimization. . . . . . . . . . . . 120 6.2 a being concave and monotone increasing in b. . . . . . . . . 134 6.3 Lower envelope of the dual variable . . . . . . . . . . . . . . 139 6.4 Spot price quantiles. . . . . . . . . . . . . . . . . . . . . . . . 143 6.5 Arbitrage between futures. . . . . . . . . . . . . . . . . . . . 153 6.6 Static value decomposition. . . . . . . . . . . . . . . . . . . . 155 6.7 Positioning of contracts and plants. . . . . . . . . . . . . . . . 166 7.1 Scenarios of the three stochastic processes. . . . . . . . . . . 171 7.2 Optimal water level. . . . . . . . . . . . . . . . . . . . . . . . 174 7.3 Expected profit. . . . . . . . . . . . . . . . . . . . . . . . . . 178 7.4 Future position and average spot position. . . . . . . . . . . . 180 7.5 Average price of produced electricity. . . . . . . . . . . . . . 182
List of Figures xv 7.6 Marginal value of water. . . . . . . . . . . . . . . . . . . . . 182 7.7 Value decomposition of water (C=-2). . . . . . . . . . . . . . 184 7.8 Value decomposition of water (C=2). . . . . . . . . . . . . . . 185 7.9 Optimal dispatch (C=2). . . . . . . . . . . . . . . . . . . . . 187 7.10 Optimal dispatch (C=0). . . . . . . . . . . . . . . . . . . . . 188 7.11 Optimal dispatch (C=-5.6). . . . . . . . . . . . . . . . . . . . 188
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 and 10: Contents Acknowledgements ¡ ¢ ¡
Page 11 and 12: Contents xi 5.1 Overview . . . . .
Page 13: List of Figures 2.1 Illustration of
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
Page 63 and 64: 3.3 The risks in the electricity ma
Page 65 and 66:
3.3 The risks in the electricity ma
Page 67 and 68:
3.4 Traditional risk management mod
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Page 71 and 72:
Page 73 and 74:
Page 75 and 76:
l H xg yLihkjml f 3.5 The need for
Page 77 and 78:
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
Page 89 and 90:
“ 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
Page 139 and 140:
Page 141 and 142:
x k xëk x ìk Ü xë k 0Ü x ìk 0
Page 143 and 144:
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
Page 151 and 152:
¢ é á 6.5 Analysis of optimal di
Page 153 and 154:
ìj Û 1 bë j Ý?Ü j 1Ü á?á@á
Page 155 and 156:
u ¦ j Ü è è aëj ¦ bë j u j
Page 157 and 158:
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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Page 173 and 174:
ö 6.6 Power portfolio optimization
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ö Ü 6.6 Power portfolio optimizat
Page 177 and 178:
ö S kã j á 6.6 Power portfolio o
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¢ ¢ 6.6 Power portfolio optimizat
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î yú1 î é yú1 á ¢ 6.6 Power
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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
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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
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7.4 Value decomposition 183 expecte
Page 201 and 202:
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
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a4q V a4q G 1 V H a4q 6 Appendix A
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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
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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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