Electricity market short-term risk management via risk-adjusted probability measures

What is it about?

This paper focuses on the short-term operation of thermal plants, market bidding and operating reserve problems. Two important issues are covered: 1) how to coordinate the offers in the forward market and the spot market, and 2) how to schedule a portfolio of generators to maximize the profit obtained by selling energy and ancillary services, but keeping an adequate level of risk exposure.

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Why is it important?

The focus of this paper is the proposed algorithm (named Iterative CVaR) that allows to consider risk management criteria in a different way as the standard CVaR formulation. To find the optimal risk-averse solution the algorithm solves a sequence of simpler risk-neutral stochastic optimization problems. To do so, the algorithm substitutes the original probabilities with the risk-adjusted ones.