Valuation of congestion revenue rights in competitive electricity markets

Congestion revenue right (CRR) is a financial tool designed to manage congestion risk in electricity markets. In this paper different alternatives for valuation of CRRs are analyzed. First, operational and functional aspects associated with electricity markets are presented. The concept of CRR and its importance as a tool for managing congestion risk is explored. Second, three different quantitative methodologies are introduced. The applicability of them to different system conditions is discussed. The performances of the methodologies previously introduced are compared. Third, the necessity of considering not only an estimation of central tendency but also an estimation of dispersion in the valuation of CRR process is presented. Finally, advantages and disadvantages of each method are enumerated.