Hedging risks with interruptible load programs for a load serving entity

• Published in: Decision Support Systems Vol. 48; no. 1; pp. 150 - 157
• Main Authors: Hatami, A.R., Seifi, H., Sheikh-El-Eslami, M.K.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.12.2009; Elsevier; Elsevier Sequoia S.A
• Subjects: Applied sciences; Conditional value at risk; Decision theory. Utility theory; Exact sciences and technology; Hedging; Interruptible load programs; Load; Load serving entity; Mathematical programming; Operational research and scientific management; Operational research. Management science; Portfolio theory; Purchasing; Risk theory. Actuarial science; Stochastic models; Stochastic programming; Studies; Uncertainty; Load serving entity; Hedging; Interruptible load programs; Conditional value at risk; Stochastic programming; Procurement; Deregulation; Market structure; Warranty; Probabilistic approach; Optimal policy; Financial management; Stochastic method; Case study; Uncertain system; Electric energy; Power system load; Purchases; Risk management; Contract
• ISSN: 0167-9236; 1873-5797
• DOI: 10.1016/j.dss.2009.07.007

In deregulated power systems, a load serving entity purchases electric energy from the wholesale market and sells it to its customers at regulated fixed prices. The load serving entity faces several uncertainties in its trading. This paper addresses the hedging problem of a load serving entity with the aid of interruptible load programs. A method, based on stochastic programming, is proposed to determine the optimal procurement of interruptible loads for a specified period of time. The objective is to minimize the market risks presented by a multi-period risk measure. Meanwhile, the conditional value at risk approach is used to measure the risks. In addition, different types of interruptible contracts are considered and their effects on the optimal procurement policy are analyzed. A case study is illustrated to demonstrate the proposed method.