Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets
Autor(a) principal: | |
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Data de Publicação: | 2023 |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.9/3988 |
Resumo: | ABSTRACT: The liberalization of the electricity sector has conducted to the establishment of spot markets, derivative markets and private bilateral contracts to trade electricity, increasing the competition in the sector. Spot markets are composed of day-ahead, intraday and real-time markets, and their prices are highly volatile. Derivative markets are composed of physical and financial products to hedge against spot price volatility. Players can set the terms and conditions of private bilateral contracts but these have several risks that can be mitigated using a risk management process composed of three phases: risk assessment, characterization and hedging. This paper focuses on both risk attitude and risk-sharing, and how they can influence the negotiation of the price. It presents the standard and non-standard designs of a new type of contract, the Risk-Sharing Contract (RSC). Furthermore, it describes the trading process of these contracts and introduces a negotiation strategy for dealing with risk. It also presents case studies on bilateral contracting involving the negotiation of RSCs, where different demand and supply agents interact and trade according to the rules of an alternating offers protocol. Results from the case studies prove the benefit of RSCs to hedging against spot price volatility, benefiting risk-averse players by reducing the price risk and conducting mutually beneficial agreements. While the use of derivatives products can conduct losses/revenues between -15% and 3% concerning the spot market, by using non-standard RSCs those outputs vary between -1% and 3% with substantially less risk. |
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Risk-Sharing Contracts and risk management of bilateral contracting in electricity marketsElectricity marketsBilateral contractingNegotiation strategiesRisk managementABSTRACT: The liberalization of the electricity sector has conducted to the establishment of spot markets, derivative markets and private bilateral contracts to trade electricity, increasing the competition in the sector. Spot markets are composed of day-ahead, intraday and real-time markets, and their prices are highly volatile. Derivative markets are composed of physical and financial products to hedge against spot price volatility. Players can set the terms and conditions of private bilateral contracts but these have several risks that can be mitigated using a risk management process composed of three phases: risk assessment, characterization and hedging. This paper focuses on both risk attitude and risk-sharing, and how they can influence the negotiation of the price. It presents the standard and non-standard designs of a new type of contract, the Risk-Sharing Contract (RSC). Furthermore, it describes the trading process of these contracts and introduces a negotiation strategy for dealing with risk. It also presents case studies on bilateral contracting involving the negotiation of RSCs, where different demand and supply agents interact and trade according to the rules of an alternating offers protocol. Results from the case studies prove the benefit of RSCs to hedging against spot price volatility, benefiting risk-averse players by reducing the price risk and conducting mutually beneficial agreements. While the use of derivatives products can conduct losses/revenues between -15% and 3% concerning the spot market, by using non-standard RSCs those outputs vary between -1% and 3% with substantially less risk.ElsevierRepositório do LNEGAlgarvio, Hugo2023-01-13T12:14:24Z2023-012023-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.9/3988engAlgarvio, Hugo - Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets. In: International Journal of Electrical Power and Energy Systems, 2023, vol. 144, article nº 1085790142-061510.1016/j.ijepes.2022.1085791879-351info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-01-15T04:49:39Zoai:repositorio.lneg.pt:10400.9/3988Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T16:31:43.949215Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets |
title |
Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets |
spellingShingle |
Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets Algarvio, Hugo Electricity markets Bilateral contracting Negotiation strategies Risk management |
title_short |
Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets |
title_full |
Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets |
title_fullStr |
Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets |
title_full_unstemmed |
Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets |
title_sort |
Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets |
author |
Algarvio, Hugo |
author_facet |
Algarvio, Hugo |
author_role |
author |
dc.contributor.none.fl_str_mv |
Repositório do LNEG |
dc.contributor.author.fl_str_mv |
Algarvio, Hugo |
dc.subject.por.fl_str_mv |
Electricity markets Bilateral contracting Negotiation strategies Risk management |
topic |
Electricity markets Bilateral contracting Negotiation strategies Risk management |
description |
ABSTRACT: The liberalization of the electricity sector has conducted to the establishment of spot markets, derivative markets and private bilateral contracts to trade electricity, increasing the competition in the sector. Spot markets are composed of day-ahead, intraday and real-time markets, and their prices are highly volatile. Derivative markets are composed of physical and financial products to hedge against spot price volatility. Players can set the terms and conditions of private bilateral contracts but these have several risks that can be mitigated using a risk management process composed of three phases: risk assessment, characterization and hedging. This paper focuses on both risk attitude and risk-sharing, and how they can influence the negotiation of the price. It presents the standard and non-standard designs of a new type of contract, the Risk-Sharing Contract (RSC). Furthermore, it describes the trading process of these contracts and introduces a negotiation strategy for dealing with risk. It also presents case studies on bilateral contracting involving the negotiation of RSCs, where different demand and supply agents interact and trade according to the rules of an alternating offers protocol. Results from the case studies prove the benefit of RSCs to hedging against spot price volatility, benefiting risk-averse players by reducing the price risk and conducting mutually beneficial agreements. While the use of derivatives products can conduct losses/revenues between -15% and 3% concerning the spot market, by using non-standard RSCs those outputs vary between -1% and 3% with substantially less risk. |
publishDate |
2023 |
dc.date.none.fl_str_mv |
2023-01-13T12:14:24Z 2023-01 2023-01-01T00:00:00Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10400.9/3988 |
url |
http://hdl.handle.net/10400.9/3988 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Algarvio, Hugo - Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets. In: International Journal of Electrical Power and Energy Systems, 2023, vol. 144, article nº 108579 0142-0615 10.1016/j.ijepes.2022.108579 1879-351 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Elsevier |
publisher.none.fl_str_mv |
Elsevier |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
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RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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1799130772498546688 |