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Journal of Emerging Trends in Engineering and Applied Sciences (JETEAS)


Article Title: Option Electricity Market Design Under UI Mechanism In India
by D. Panda, S. N. Singh, and Vimal Kumar

This paper addresses profit risk of a Genco in electricity market, and explores several ways of managing such risks. It focuses on introduction of option contracts in Indian electricity market. The existing unscheduled interchange (UI) mechanism is used to control frequency deviation, thereby maintaining the security of the system in real time. The work applies conceptual option market framework to hedge the profit risk against price fluctuation in Indian spot market from a power generators prospective. These options instruments are then used to hedge against price fluctuation because of UI mechanism, in order to maximize producers expected utility. The aim here is to find the optimal option prices with the known UI price and forecasted unbalanced real time amount. The model described here considers a fixed number of put options for every time block of a day. Stochastic programming technique is being used to solve the expected profit maximization problem. The effectiveness of this approach is tested for power producers in Indian electricity market. A numerical example of a generating station is being illustrated to show the revenue maximization problem. Further, with known option prices, the paper proposes an optimal allocation problem for option market to hedge against spot price variation. The proposal addresses some of the major issues such as involvement of gaming through over injection by generating stations. This way both Genco and consumer can make benefit of holding option contracts to limit their losses in case of electricity price variation.
Keywords: electricity market, unscheduled interchange (ui), option contracts, profit maximization, optimal allocation
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ISSN: 2141-7016

Editor in Chief.

Prof. Gui Yun Tian
Professor of Sensor Technologies
School of Electrical, Electronic and Computer Engineering
University of Newcastle
United Kingdom



Copyright © Journal of Emerging Trends in Engineering and Applied Sciences 2010