On stochastic auctions in risk-averse electricity markets with uncertain supply

Abstract

This paper studies risk in the context of a stochastic auction designed to facilitate the integration of renewable generation in electricity markets. We model market participants who are risk averse, when their risk aversion is reflected through coherent risk measures. We uncover a closed form characterization of the optimal pre-commitment behaviour for a given real-time policy, with arbitrary risk aversion: when participants cannot trade risk, generators provide less pre-commitment than when participants are risk-neutral, alternatively, when participants trade a rich set of financial instruments, generators provide more pre-commitment than when they are risk-neutral.

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