Financial Resilience and Financial Reliability for Systemic Risk Assessment of Electricity Markets With High-Penetration Renewables

Abstract

Over the past 20 years, the rapid integration of renewable energy has resulted in electricity markets that are increasingly complex, interconnected, and uncertain. Similar to the banking system's financial crisis in 2008 due to chained reactions, severe financial losses due to uncertainty at a large renewable farm could induce significant financial losses at other market participants. The spread of such financial shocks can be worsened by centralized market clearing, and systemic risks consequently germinate in electricity market operations. Therefore, our previous work has compared <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">systemic</i> risk with <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">systematic</i> risk in the electricity market with uncertainties. However, the scope of our previous work has been limited to risk indices. This paper aims to broaden the study by proposing the theoretical foundation of systemic risk analysis in electricity markets with uncertainties. First, an electricity market financial network is defined to describe the cash inflow/outflow of all participants, and the financial contagion is employed to model the interlinks between different entities. Then, two financial properties, financial resilience and financial reliability, are proposed to evaluate the systemic risk in market settlements with uncertainties. Finally, the proposed theoretical foundation of systemic risk is demonstrated on the Texas synthetic 2000-bus system with 70% renewable penetration.