Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets

Algarvio, Hugo

Publication

Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets

2023-01Journal article

dc.contributor.author	Algarvio, Hugo
dc.date.accessioned	2023-01-13T12:14:24Z
dc.date.available	2023-01-13T12:14:24Z
dc.date.issued	2023-01
dc.description.abstract	ABSTRACT: The liberalization of the electricity sector has conducted to the establishment of spot markets, derivative markets and private bilateral contracts to trade electricity, increasing the competition in the sector. Spot markets are composed of day-ahead, intraday and real-time markets, and their prices are highly volatile. Derivative markets are composed of physical and financial products to hedge against spot price volatility. Players can set the terms and conditions of private bilateral contracts but these have several risks that can be mitigated using a risk management process composed of three phases: risk assessment, characterization and hedging. This paper focuses on both risk attitude and risk-sharing, and how they can influence the negotiation of the price. It presents the standard and non-standard designs of a new type of contract, the Risk-Sharing Contract (RSC). Furthermore, it describes the trading process of these contracts and introduces a negotiation strategy for dealing with risk. It also presents case studies on bilateral contracting involving the negotiation of RSCs, where different demand and supply agents interact and trade according to the rules of an alternating offers protocol. Results from the case studies prove the benefit of RSCs to hedging against spot price volatility, benefiting risk-averse players by reducing the price risk and conducting mutually beneficial agreements. While the use of derivatives products can conduct losses/revenues between -15% and 3% concerning the spot market, by using non-standard RSCs those outputs vary between -1% and 3% with substantially less risk.	pt_PT
dc.description.version	info:eu-repo/semantics/publishedVersion	pt_PT
dc.identifier.citation	Algarvio, Hugo - Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets. In: International Journal of Electrical Power and Energy Systems, 2023, vol. 144, article nº 108579	pt_PT
dc.identifier.doi	10.1016/j.ijepes.2022.108579	pt_PT
dc.identifier.eissn	1879-351
dc.identifier.issn	0142-0615
dc.identifier.uri	http://hdl.handle.net/10400.9/3988
dc.language.iso	eng	pt_PT
dc.peerreviewed	yes	pt_PT
dc.publisher	Elsevier	pt_PT
dc.relation	Tools for the Design and modelling of new markets and negotiation mechanisms for a ~100% Renewable European Power Systems
dc.relation.publisherversion	https://doi.org/10.1016/j.ijepes.2022.108579	pt_PT
dc.rights.uri	http://creativecommons.org/licenses/by/4.0/	pt_PT
dc.subject	Electricity markets	pt_PT
dc.subject	Bilateral contracting	pt_PT
dc.subject	Negotiation strategies	pt_PT
dc.subject	Risk management	pt_PT
dc.title	Risk-Sharing Contracts and risk management of bilateral contracting in electricity markets	pt_PT
dc.type	journal article
dspace.entity.type	Publication
oaire.awardTitle	Tools for the Design and modelling of new markets and negotiation mechanisms for a ~100% Renewable European Power Systems
oaire.awardURI	info:eu-repo/grantAgreement/EC/H2020/864276/EU
oaire.citation.title	International Journal of Electrical Power and Energy Systems	pt_PT
oaire.citation.volume	144	pt_PT
oaire.fundingStream	H2020
person.identifier.ciencia-id	B01D-304F-6CD3
person.identifier.orcid	0000-0002-4129-838X
project.funder.identifier	http://doi.org/10.13039/501100008530
project.funder.name	European Commission
rcaap.rights	openAccess	pt_PT
rcaap.type	article	pt_PT
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