Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets

Detalhes bibliográficos
Autor(a) principal: Algarvio, Hugo
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.
id RCAP_b9871ee0377f484d3ac10d47818dc40b
oai_identifier_str oai:repositorio.lneg.pt:10400.9/3988
network_acronym_str RCAP
network_name_str Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
repository_id_str 7160
spelling 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
instname_str Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação
instacron_str RCAAP
institution RCAAP
reponame_str Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
collection 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
repository.mail.fl_str_mv
_version_ 1799130772498546688