Analysis of probabilistic second order effect in energy market interaction

Fuel prices are critical in establishing the price of electricity (including its supportive services). Absent demand response and a shortage of electricity substitutes on the consumer side, when fuel prices vary, economic logic dictates a change in input production patterns to producers. This paper employs an energy market model to simulate second order effect, demand as source of variability, in the interactions among electricity and fuel variables. Different demand scenarios are generated by a Monte Carlo method to assess the effect of the random variables on energy trading, first by introducing each variable singularly, and then considering the random interactions of all of them.