Electricity Pool Prices: Long-Term Uncertainty Characterization for Futures-Market Trading and Risk Management Articles uri icon

publication date

  • February 2010

start page

  • 235

end page

  • 245

issue

  • 2

volume

  • 61

international standard serial number (ISSN)

  • 0160-5682

electronic international standard serial number (EISSN)

  • 1476-9360

abstract

  • Organized trading for electricity includes both the pool and the futures market. Pool prices are volatile while the prices of the futures-market products are comparatively more stable. Thus, futures-market products
    constitute hedging instruments to reduce the risk suffered by any market
    agent. Electricity market agents engage in both pool and futures market
    transactions seeking to maximize their respective profits/utilities
    for a given risk level on profit variability. To make informed
    decisions, the market agent must gather as much accurate information as
    possible on the pool prices covering the whole time horizon spanned by
    the futures-market product. This paper provides a novel technique to
    represent conveniently the uncertainty associated with pool prices
    during long- or medium-term horizons through a set of scenarios, that
    is, pool price realizations. The proposed technique uses the prices of
    the futures-market products as long-term explanatory variables and
    exploits the short-term structure of the pool prices.