Power generation planning and risk management in a liberalised market

As the new power markets in many countries develop and (hopefully) become well-functioning, management of electricity utilities should change. We present a set of generation planning models adapted to a price taking generator in a competitive market situation. In this important special case, prices coordinate decisions of local plant managers, and hence, operational planning can be decentralised. Furthermore, we present a model for minimising the risk of the total electricity portfolio, which includes own generation resources and committed power contracts. This model captures both price risk and other sources of risk.

I. Introduction

Utilities and generating companies worldwide are in the process of adapting their systems to the liberalisation of electricity markets. We take the perspective of an electricity generation utility facing uncertainty in market prices and other factors such as local demand, prices of fuel for thermal plants, inflow to hydropower plants and generating unit availability. We assume that this generation utility is not large enough to be able to influence electricity prices by changing the amount of generation capacity offered to the market. The market is assumed to be liberalised, but not necessarily perfectly competitive.