IDEAS home Printed from https://ideas.repec.org/a/taf/uiiexx/v50y2018i8p645-653.html
   My bibliography  Save this article

An improved basket of spread options heuristic for merchant energy storage

Author

Listed:
  • Nicola Secomandi

Abstract

Practitioners use the Basket of Spread Options (BSO) heuristic to model merchant energy storage as a portfolio of spread options and spot/forward sales. This method solves a linear program to obtain the composition of this portfolio and its associated BSO policy. Sequential reoptimization of this model yields the Rolling BSO (RBSO) policy. Although this policy performs well, typically dominating the BSO policy and often being near optimal, it can struggle when storage is fast. To attempt to obtain an improved RBSO policy, especially for fast storage, this article proposes a BSO heuristic that modifies the objective function of the BSO linear program based on exchange option prices and a tunable parameter. On a set of known natural gas storage instances, limited optimization of this adjustable quantity leads to modestly improved RBSO policies on average but substantially so when the original RBSO policies perform poorly, which occurs on some fast storage instances. Moreover, fixing this parameter to 0.6 gives RBSO policies that virtually match the performance of the best considered RBSO policies. The proposed BSO heuristic is thus as easy to use in practice as the original BSO heuristic.

Suggested Citation

  • Nicola Secomandi, 2018. "An improved basket of spread options heuristic for merchant energy storage," IISE Transactions, Taylor & Francis Journals, vol. 50(8), pages 645-653, August.
    • Handle: RePEc:taf:uiiexx:v:50:y:2018:i:8:p:645-653
    DOI: 10.1080/24725854.2017.1336685
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/24725854.2017.1336685
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/24725854.2017.1336685?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anna Maria Gambaro & Nicola Secomandi, 2021. "A Discussion of Non‐Gaussian Price Processes for Energy and Commodity Operations," Production and Operations Management, Production and Operations Management Society, vol. 30(1), pages 47-67, January.
    2. Ekaterina Abramova & Derek Bunn, 2021. "Optimal Daily Trading of Battery Operations Using Arbitrage Spreads," Energies, MDPI, vol. 14(16), pages 1-23, August.
    3. Nadarajah, Selvaprabu & Secomandi, Nicola, 2023. "A review of the operations literature on real options in energy," European Journal of Operational Research, Elsevier, vol. 309(2), pages 469-487.
    4. Ekaterina Abramova & Derek Bunn, 2019. "Estimating Dynamic Conditional Spread Densities to Optimise Daily Storage Trading of Electricity," Papers 1903.06668, arXiv.org.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:uiiexx:v:50:y:2018:i:8:p:645-653. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/uiie .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.