Price volatility and service interruption risk-hedging by transmission contract

Summary form only given. In the present paper, the authors propose a transmission contract for reliability and risk-hedging in the deregulated power system. The proposed transmission contract, which is conducted by transmission system operator, is a product of the agreements between generation company, transmission system operator, distribution company and large consumer. The proposed transmission contract results in a certain income of generation company and provides an incentive for new investments to meet demand in the future. Furthermore, it can help distribution company and large consumer hedge the risks, which caused by the volatility of the price in the spot market. Additionally, for the large consumer, whose load needs high reliable electricity, the proposed contract gives a guaranty that his/her load will always be supplied or otherwise he/she will receive a compensation for the service interruption. The effectiveness, especially from consumer´s viewpoint, is shown by using the simulation based on two market models: pool model and mixed pool/bilateral model