Spatial energy market risk analysis. II. The spatial risk model

Abstract

The paper focuses on the formulation of a spatial power market risk model based on the Markowitz semivariance method. The model is for assessing the risk of profit making of power producers in a multi-pool market setting. This is a sophisticated problem that has not been addressed sufficiently. The model also includes practical constraints such as transaction costs and wheeling contracts, leading to a mixed integer formulation. A case study is used to illustrate the successful application of the model with satisfying results.