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Considering Forward Electricity Prices for a Hydro Power Plant Risk Analysis in the Brazilian Electricity Market

Author

Listed:
  • Arthur Lauro

    (Electrical Energy Department, Federal University of Juiz de Fora, UFJF, Juiz de Fora 36036-330, Brazil)

  • Daniel Kitamura

    (Electrical Energy Department, Federal University of Juiz de Fora, UFJF, Juiz de Fora 36036-330, Brazil)

  • Waleska Lima

    (Electrical Energy Department, Federal University of Juiz de Fora, UFJF, Juiz de Fora 36036-330, Brazil)

  • Bruno Dias

    (Electrical Energy Department, Federal University of Juiz de Fora, UFJF, Juiz de Fora 36036-330, Brazil)

  • Tiago Soares

    (Center for Power and Energy Systems, Institute for Systems and Computer Engineering, Technology and Science, 4200-465 Porto, Portugal)

Abstract

The Brazilian Power System is mainly composed of renewable generation from hydroelectric and wind. Hence, spot and forward electricity prices tend to represent the inherently stochastic nature of these resources, while risk management is a measure taken by agents, especially hydro power plants (HPPs) to hedge against deep financial losses. A HPP goal is to maximize its profit considering uncertainties in forward electricity prices, spot prices, and generation scaling factor (GSF) for years ahead. Therefore, the objective of this work is to simulate the real decision-making process of a HPP, where they need to have a perspective of the forward market and future spot price assessment to negotiate forward electricity contracts. To do so, the present work models the uncertainty in electricity forward prices via two-stage stochastic programming, assessing the benefits of the stochastic solution in comparison to the deterministic one. In addition, different risk aversion levels are assessed using conditional value at risk (CVaR). An important conclusion is that the results show that the greater the HPP risk aversion is, the greater the energy selling via electricity forward contracts. Moreover, the proposed model has benefits in comparison to a deterministic approach.

Suggested Citation

  • Arthur Lauro & Daniel Kitamura & Waleska Lima & Bruno Dias & Tiago Soares, 2023. "Considering Forward Electricity Prices for a Hydro Power Plant Risk Analysis in the Brazilian Electricity Market," Energies, MDPI, vol. 16(3), pages 1-13, January.
    • Handle: RePEc:gam:jeners:v:16:y:2023:i:3:p:1173-:d:1042860
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    References listed on IDEAS

    as
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