Methodology for pricing energy back up contracts of a portfolio of power plants

The main objective of this work is to present a methodology that determines the back up contract level and pricing criteria that take into account the risk aversion profile of the investors. The risks considered are those associated with random forced outages and spot price volatility in hydro-thermal systems. The back up contract level is determined based on VaR concept according to the back up requirement probability distribution and the hedging level desired by the investor. Two pricing criteria are presented and discussed: the mean value and the certainty equivalent. The latter takes into account the investor´s risk aversion by means of utility functions. The methodology is applicable to portfolios of hydro and thermal plants operating in different systems, i.e. with possible different spot prices. A case study analysing the impact of back up strategies for a set of hydro and thermal plants is presented and discussed by using a configuration of the Brazilian system.