Abstract
The restructuring of electricity markets around the world have caused increased volatility and uncertainty of the price power. As a result, providers of power now face increased uncertainty and risk in the operational and financial decisions related to procurement. Providers must seek optimal ways to deliver the required volume of power to retailers and end users while managing risk. We consider a mixed-integer programming model for a power providing agent that jointly considers the problem of selecting custom electricity contracts and finding the optimal procurement strategy of meeting contract obligations under spot price uncertainty. A two-stage stochastic integer programming (SIP) model with a conditional value-at-risk (CVaR) constraint to incorporate risk aversion is developed. Computational results are presented that demonstrates the CVaR approach and the results are compared with a corresponding expected cost minimization approach. The SIP model with CVaR will allow acceptance of contracts at lower prices compared to an approach based on a corresponding risk-neutral model as a hedge against uncertainty and mis-specified arbitrage.
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