Effect of Risk Measures on Bilateral Trading in Electricity Markets

A scheme is developed and tested to negotiate bilateral contracts in mixed pool/bilateral electricity markets. Each negotiating party can choose any of the following three general measures to assess its profit risk: (i) regret; (ii) dispersion-from-the-mean; (iii) value-at-risk. Similarly, a mix of three measures can be used to describe the benefit: (i) expected profit; (ii) expected rate of return; (iii) expected ratio of the actual to ideal profits. The main results include: an analysis and comparison of different measures of risk and benefit on the outcome of a bilateral negotiation; an analysis of the impact on the outcome of the negotiation of various sources of uncertainty.