Investment and bidding strategies in markets for firm transmission rights

Author

Rudkevich, Aleksandr

Author_Institution

Tabors Caramanis & Associates, Cambridge, MA, USA

fYear

2004

fDate

5-8 Jan. 2004

Abstract

The first part of this paper addresses the applicability of the Markowitz portfolio theory to investing in contracts for firm transmission right (CFTRs) or transmission congestion contracts (TCCs) typical for electricity markets in Northeastern US (PJM, NY ISO, ISO New England). Special emphasis is placed on the use of the principal component analysis providing for a dramatic reduction in the size of the optimization problem, selecting subsets of statistically independent CFTRs/TCCs and on the mathematical formulation of necessary and sufficient conditions for arbitrage opportunities. The second part of the paper is dedicated to the analysis of profit-maximizing bidding strategies available to large players with significant auction revenue rights (ARRs). The use of the supply function equilibrium technique provides for a closed form solution in the case of two strategic players competing for CFTRs over a major interface.

Keywords

game theory; investment; optimisation; power markets; power transmission economics; principal component analysis; Markowitz portfolio theory; electricity markets; firm transmission rights; investment strategy; necessary condition; optimization problem; principal component analysis; profit-maximizing bidding strategy; sufficient condition; supply function equilibrium; transmission congestion contracts; Contracts; Costs; Electricity supply industry; Electricity supply industry deregulation; ISO; Investments; Portfolios; Power generation; Principal component analysis; Risk management;

fLanguage

English

Publisher

ieee

Conference_Titel

System Sciences, 2004. Proceedings of the 37th Annual Hawaii International Conference on

Print_ISBN

0-7695-2056-1

Type

conf

DOI

10.1109/HICSS.2004.1265169

Filename

1265169