In this work we propose a term structure power price model that, in contrast to widely accepted no-arbitrage based approaches, accounts for the non-storable nature of power. It belongs to a class of equilibrium game-theoretic models with players divided into producers and consumers. Consumers aim to maximize a mean-variance utility function subject to the inelastic demand of their own clients (households, businesses etc.) to whom they sell power. Similarly, producers, who own a portfolio of power plants each defined by a running fuel (gas, coal, oil etc.) and various physical characteristics (efficiency, capacity, ramp up/down times etc.), seek to maximize a mean-variance utility function consisting of power, fuel, and emission prices subject to production constraints. Our goal is to determine the term structure of the power price at which production matches consumption. In this work we show that in such a setting, the equilibrium price exists, and also discuss conditions under which it is unique. We then extend the model to incorporate information about block contracts, transaction costs and liquidity. Moreover, we propose a tractable quadratic programming formulation for calculating the equilibrium term structure of electricity prices. Our numerical simulations examine the dependence of the term structure on various parameters of the model. Our model is applied to calculate the equilibrium term structure of electricity prices in the UK, by modeling the entire power grid consisting of a few hundred power plants. We extend the model further by modeling startup costs of power plants. In contrast to other approaches presented in the literature, we incorporate them in a mathematically rigorous manner without relying on ad hoc heuristics. We propose a tractable approach for estimating startup costs of power plants based on their historical production. Through numerical simulations applied to the entire UK power grid, we demonstrate that the inclusion of startup costs is necessary for modeling electricity prices in realistic power systems.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:712016 |
| Date | January 2015 |
| Creators | Troha, Miha |
| Contributors | Hauser, Raphael |
| Publisher | University of Oxford |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Source | https://ora.ox.ac.uk/objects/uuid:60e77641-389d-4cab-a80f-b6b532f014ea |
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