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How Load Aggregators Avoid Risks in Spot Electricity Market: In the Framework of Power Consumption Right Option Contracts

Jiacheng Yang1, Xiaohe Zhai1, Zhongfu Tan1,2,*, Zhenghao He1
1 School of Economic and Management, North China Electric Power University, Beijing, 102206, China
2 School of Economic and Management, Yan'an University, Yan'an, 716000, China
* Corresponding Author: Zhongfu Tan. Email:
(This article belongs to this Special Issue: Advances in Modern Electric Power and Energy Systems)

Energy Engineering 2022, 119(3), 883-906. https://doi.org/10.32604/ee.2022.018033

Received 05 July 2021; Accepted 30 September 2021; Issue published 31 March 2022

Abstract

There is uncertainty in the electricity price of spot electricity market, which makes load aggregators undertake price risks for their agent users. In order to allow load aggregators to reduce the spot market price risk, scholars have proposed many solutions, such as improving the declaration decision-making model, signing power mutual insurance contracts, and adding energy storage and mobilizing demand-side resources to respond. In terms of demand side, calling flexible demand-side resources can be considered as a key solution. The user's power consumption rights (PCRs) are core contents of the demand-side resources. However, there have been few studies on the pricing of PCR contracts and transaction decisions to solve the problem of price forecast deviation and to manage the uncertainty of spot market prices. In addition, in traditional PCR contracts, PCRs are mostly priced using a single price mechanism, that is, the power user is compensated for part of the electricity that was interrupted or reduced in power supply. However, some power users might engage in speculative behaviours under this mechanism. Further, for load aggregators, their price risk avoidance ability has not substantially improved. As a financial derivative, options can solve the above problems. In this article, firstly, the option method is used to build an option pricing optimization model for power consumption right contracts that can calculate the optimal option premium and strike price of option contracts of power consumption rights. Secondly, from the perspective of power users and load aggregators, a simulation model of power consumption right transaction decision-making is constructed. The results of calculation examples show that (1) Under the model in this article, the pricing of option contracts for power consumption rights with better risk aversion capabilities than traditional compensation contracts can be obtained. (2) The decision to sell or purchase the power consumption rights will converge at respective high-value periods, and option contracts will expedite the process. (3) Option contracts can significantly reduce the loss caused by the uncertainty of spot electricity prices for load aggregators without reducing users’ willingness to sell power consumption rights.

Keywords

Load aggregator; demand response; power consumption right; option pricing; decision-making

Cite This Article

Yang, J., Zhai, X., Tan, Z., He, Z. (2022). How Load Aggregators Avoid Risks in Spot Electricity Market: In the Framework of Power Consumption Right Option Contracts. Energy Engineering, 119(3), 883–906.



This work is licensed under a Creative Commons Attribution 4.0 International License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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