Modeling Power Portfolio with Supply Contracts for Mitigating Risks of Serving Uncertain Demand

Electricity suppliers are always confronted with demand uncertainty even though the state-of-the-art forecast and sophisticated control systems are employed to ensure both security and reliability. With the emergence of power market, the market participants such as generation companies, load serving entities, etc., even face higher degree of uncertainty in its operation planning. This is due to the unique characteristics of electricity which could result in unprecedented price spikes. A portfolio of supply contracts including forwards and options is a set of tools for reducing the impacts of both demand uncertainty and price volatility by increasing production flexibility. Thus, a procurement strategy can be implemented by providing more choices via contracting in addition to self generation and spot market transactions. In this framework, a two-stage planning model is developed for improving the short-term operation by incorporating risk hedging strategy in the planning problem so as to meet stochastic demand