Risk Management on Long-term Electricity Purchase Allocation in China Power Markets

This paper presents an integrated framework for the optimal management of electricity purchase allocation and risk for load service entities (LSEs). To the practice of China Power Markets, we propose the framework of power portfolio of combined physical forward contract and spot market. The framework suggests that the forward contracts should have different prices on-peak and off-peak in accord with sale prices distinguish on-peak and off-peak. The optimal purchase problem is described by the utility maximum integrated the rate of return and risk tolerance level, and risk is evaluated by Value at Risk (VaR). The analytical solution is also conducted. The numerical results are reasonable with higher rate of return and better risk hedging compared with the corresponding results from the existing portfolio selection approach. The presented framework gives one possible and effective method for the optimal power portfolio and risk management in incomplete power markets.