Risk Modeling in Strategic Behavior and Equilibrium of Electricity Markets with Wind Power

High wind power penetration in power systems will significantly increase risks faced by the conventional generators in the deregulated electricity markets. This will further affect these generators´ risk preferences and strategic behaviors. A supply function equilibrium model of electricity markets with wind power is developed taking into account the conventional strategic generators´ risk preferences. The impacts of generators´ risk preferences on the strategic behaviors and market equilibrium are theoretically examined in detail. Numerical examples are presented to verify the validity of the theoretical analysis. It is shown that through strategic bidding, a generator´s output and profit risk will be lowered with increasing its risk aversion. In addition, a generator´s expected profit and its risk will increase with increasing its rivals´ risk aversion.