Electricity trading for coal-fired power plants in Turkish power market considering uncertainty in spot, derivatives and bilateral contract market

Abstract

In deregulated power markets, electricity suppliers have the option to trade in the spot market, derivatives market, and bilateral contract market. The spot market is always available and open to competition, but the variability and risk incurred need to be carefully handled. The suppliers might allocate their capacity in the derivatives and bilateral contract market if these alternatives are more viable. The strike price, bilateral contract price, and spot market prices need to be used to decide the capacity allocation problem considering the generation cost of the supplier. This paper first examines the market design and electricity trading in the Turkish electricity market. Then three problems were proposed for a coal-fired coal unit that aims to allocate its capacity to spot, derivative, and bilateral contract markets to maximize its expected profit. A Monte Carlo method is used for allocated electricity capacities, spot market, strike, and bilateral contract price scenarios. A simulation methodology is then proposed that includes capacities allocated to each market and price scenarios. The best capacity allocation strategy is determined that return the highest expected profits for all market price samples. The model is illustrated for a coal unit in the Turkish electricity market. The results are presented for the case, including 100 spot price samples, 100 capacity scenarios, 3 scenarios for the strike, and bilateral contract prices. The sensitivity analysis for spot price volatility on the profit is also presented with 20% volatility increase. It is shown that allocating the capacity to more than one market can increase the total expected profit for a power supplier and the rate of increase varies depending on the scenario set.