Risk-averse strategic gaming in forward and spot electricity markets

Forward markets not only provide a financial tool to hedge risks in the spot market but also change generators´ strategic behaviours. An important question thus arises that considering the market power in the forward market and the effect on spot market decisions, would the introduction of forward contracts enhance competition and efficiency? In this study, a repeated Cournot game model for two markets is presented to try to analyse and predict the generator´s risk-averse bidding behaviours in the forward and spot market. The spot price uncertainty, network congestion, multi-period spanning of forward contracts and the operating constraints of generation are taken into account in the model. Within each iteration, the individual utility maximisation problem for each generator is solved as a generation asset allocation problem between monthly futures contracts and the daily spot market. Numerical testing results show that the introduction of a forward market does encourage market participants to compete more aggressively. It is found that the bidding behaviours are affected by generators´ risk tolerance, unit operating constraints, network transfer capability etc.