Abstract
In electricity markets, bilateral contracts (BC) are used to hedge against price volatility in the spot market. Pricing these contracts requires scheduling from either the buyer or the seller aiming to achieve the highest profit possible. Since this problem includes different players, a Generation Company (GC) and an Electricity Supplier Company (ESC) are considered. The approaches to solve this problem include the Nash Bargaining Solution (NBS) equilibrium and the Raiffa–Kalai–Smorodinsky (RKS) bargaining solution. The innovation of this work is the implementation of an algorithm based on the RKS equilibrium to find a compromise strategy when determining the concessions to be made by the parties. The results are promising and show that the RKS approach can obtain better results compared to the Nash equilibrium method applied to a case study.
Highlights
Bilateral contracts (BC) are arrangements between two parties
The main objective of arranging a BC is to hedge against day-ahead market price volatility since this volatility has increased by the deregulation of the electric power industry [1,2]
This paper has proposed an RKS methodology to obtain the equilibrium of a BC used to hedge price volatility in the spot market and shortage risks
Summary
Bilateral contracts (BC) are arrangements between two parties. In an electricity market, these contracts are often established by a Generation Company (GC) and an Electricity SupplierCompany (ESC) under a set of terms, including price, duration, and the volume of electricity to be delivered. Bilateral contracts (BC) are arrangements between two parties. These contracts are often established by a Generation Company (GC) and an Electricity Supplier. The main objective of arranging a BC is to hedge against day-ahead (spot) market price volatility since this volatility has increased by the deregulation of the electric power industry [1,2]. Prior to BC settlement, both parties forecast prices in the spot market to determine their strategies under the BC and independently, schedule electricity deliveries at time intervals to maximize their profits. A BC can have the opposite effect due to the spot price being too high or too low at the market-clearing time when compared to the contract price [5]
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