A Two-Stage Stochastic Unit Commitment with Electricity Derivatives

A unit commitment problem has long been known in the class of short-term functions and decisions, inherited from vertically integrated utility. In the competitive environment, the problem has become more complicated due to the fact that any action taken will now influence profitability of decision maker such as generation companies, load serving entities, and so forth. Thus, not only do economic agents face operational risks, but they also need to procure their operations against financial risks from volatility in fuel contract, and electricity prices. This leads to the evolution of stochastic unit commitment in this paper integrating risk management tools, ie., electricity derivatives, so as to reduce the impacts from both operational and financial risks in the short run. The planning model is structured of stochastic mixed-integer program with recourse cost A case study will be addressed with preliminary result presenting an improved solution.