Risk assessment of trading price mechanisms in competitive electricity markets

In deregulated electricity markets, generators and consumers must assess their profits and losses; risk managers should develop hedging strategies for their portfolios; policy makers and system operators wish to understand the fundamentals of price forecasting, transmission constraints, congestion mitigation, and ancillary service operations. These works depend on a clear pricing scheme, which points out the importance of the research in this paper. This paper has reviewed various typical pricing mechanisms from major electricity markets in the world. Numerical examples were utilized to demonstrate a comparative analysis among these pricing mechanisms, which took dynamic load curves and system reserve margins into account. Finally, the risk assessment for the four representative pricing approaches has been studied. Risk measure techniques including the Conditional Value at Risk (CVaR) were utilized as the risk measurement tools in this research. The main contribution of this paper is to propose risk measurement indexes to evaluate various pricing mechanisms by considering actual system condition, which would provide market participants a significant reference for their trading.