Hydrothermal bilateral contract negotiation with energy and financial risks analysis

This paper presents a methodology composed of two parts to facilitate the decision making process of hydrothermal generation companies (gencos) during the negotiation of bilateral contracts. In the first part is established a procedure for determining the risk of deficit of Energy Availability (EA) introduced by a new contract under negotiation given the uncertainty in the concept of ensured energy (EE) of hydro units. In the second part, the required buyer modulation along the period of contracts due to load seasonal variation is analyzed in terms of the impact on the gencos risk to unfavorable prices (or negative spot exposition) given the uncertainty in spot prices. Furthermore, the impact on the risk of negative spot exposition is also analyzed with respect to the offered monthly flexibility option to the buyer for compensating unpredicted load variations. Results show that using this tool, gencos can have important information during the negotiation process. This information includes obtaining the risk of EA deficit, the more convenient contractual price, the risk of negative exposition to the spot market price and the maximum convenient flexibility conditions. Several numerical cases are presented to illustrate how this tool supports the decision process during the negotiation of the contractual conditions.