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Home > Science, Technology & Agriculture > Energy technology and engineering > Valuation, Hedging and Speculation in Competitive Electricity Markets: A Fundamental Approach(Power Electronics and Power Systems)
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Valuation, Hedging and Speculation in Competitive Electricity Markets: A Fundamental Approach(Power Electronics and Power Systems)

Valuation, Hedging and Speculation in Competitive Electricity Markets: A Fundamental Approach(Power Electronics and Power Systems)


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About the Book

The challenges facing participants in competitive electricity markets are staggering: high price volatility introduces significant financial risk into an industry accustomed to guaranteed rates of return, while illiquid forward markets prevent effective hedging strategies from being implemented. This title examines the unique properties which separate electricity from other traded commodities, including the lack of economical storage, and the impact of a scarce transmission network. The authors trace the sources of uncertainties in the price of electricity to underlying physical and economic processes, and incorporate these into a bid-based model for electricity spot and forward prices. They also illustrate how insufficient market data can be circumvented by using a combination of price and load data in the marking- to-market process. The model is applied to three classes of problems central to the operation of any electric utility or power marketer; valuing generation assets, formulating dynamic hedging strategies for load serving obligations, and pricing transmission contracts and locational spread options. Emphasis is placed on the difference between trades which can be "booked out" in the forward markets, and those which must be carried through to delivery. Lately, significant attention has been given to the role of regulators in mitigating excessive price levels in electricity markets. The authors conduct a quantitative analysis of the long-term effects of regulatory intervention through the use of price caps. By modeling the dynamic interplay between the observed price levels and the decision to invest in new generation assets, it is shown how such short term fixes can lead to long term deficits in the available generation capacity, and ultimately to market failures and blackouts.

Table of Contents:
Overview of Valuation and Hedging Theory.- 2.1 Valuing a Commitment Option.- 2.2 Market Based Valuation.- Overview of the Competitive Electricity Industry.- 3.1 Description of Market Participants.- 3.2 Electricity Markets.- Arbitrage Pricing and the Temporal Relationship of Electricity Prices.- 4.1 Is Electricity Really Non-storable?.- 4.2 Arbitrage and the Relationship Between Physical and Financial Contracts for Electricity.- Building a Price Model for Electricity Markets.- 5.1 Structure of Model.- 5.2 Modeling Approaches.- A Bid-Based Stochastic Model for Electricity Prices.- 6.1 Load Characteristics.- 6.2 Supply Characteristics.- 6.3 Price as a Function of Load and Supply.- 6.4 Stochastic Load Model.- 6.5 Stochastic Supply Process.- 6.6 Summary of the Bid-based Stochastic Price Model.- 6.7 Calibration of the Bid-based Stochastic Model.- 6.8 The Time-scale Separated Bid-based Stochastic Model.- 6.9 Simulations.- 6.10 Concluding Remarks.- Optimal Futures Market Strategies for Energy Service Providers.- 7.1 Hedging Risk for Energy Service Providers.- 7.2 The Physical and Economic Interaction of Energy Service Providers and their Customers.- 7.3 Problem Formulation.- 7.4 Modeling.- 7.5 Efficient Reformulation of Cost Function.- 7.6 Solution Approaches.- 7.7 The End State Problem.- 7.8 Thoughts on the Complexity of the ESP Hedging Problem.- Valuing Generation Assets.- 8.1 Introduction.- 8.2 A Principal Component Based Price Model for Electricity Spot Markets.- 8.3 Creating a Lookup Table of Cash flows.- 8.4 Linking Simulated Prices to the Lookup Table to Generate Simulated Cash Flows.- 8.5 Concluding Remarks.- 8.6 Figures.- Modeling Locational Price Differences.- 9.1 Introduction.- 9.2 Locational Pricing and Markets for Transmission.- 9.3 Modeling Transmission Rights asa Derivative on Spot Prices.- 9.4 Overview of Existing Price Models.- 9.5 Interactions Between Neighboring Markets.- 9.6 Valuing a Transmission Right.- 9.7 Simulation Based Valuation.- 9.8 Dynamic Hedging.- 9.9 Generalization of the Model to A 3 Node Example.- Investment Dynamics and Long Term Price Trends in Competitive Electricity Markets.- 10.1 Introduction.- 10.2 A Long Term Model for Electricity Prices.- 10.3 Modeling Investment Dynamics.- 10.4 A Dynamic Notion of Reliability.- 10.5 Effects of Government Policy.- 10.6 Concluding Remarks.- Conclusion.- Appendix A.- Appendix B.- References.


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Product Details
  • ISBN-13: 9780792375289
  • Publisher: Kluwer Academic Publishers
  • Publisher Imprint: Kluwer Academic Publishers
  • Height: 235 mm
  • No of Pages: 214
  • Returnable: Y
  • Sub Title: A Fundamental Approach
  • ISBN-10: 0792375289
  • Publisher Date: 31 Oct 2001
  • Binding: Hardback
  • Language: English
  • Returnable: Y
  • Series Title: Power Electronics and Power Systems
  • Width: 155 mm


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Valuation, Hedging and Speculation in Competitive Electricity Markets: A Fundamental Approach(Power Electronics and Power Systems)
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Valuation, Hedging and Speculation in Competitive Electricity Markets: A Fundamental Approach(Power Electronics and Power Systems)
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