Financial risk management in a competitive electricity market

This paper proposes solutions for electricity producers in the field of fin ancial risk management for electric energy contract evaluation. The efficie nt frontier is used as a tool to identify the preferred portfolio of contra cts. Each portfolio has a probability density function for the profit. For important scheduling policies, closed form solutions are found for the amou nt of futures contracts that correspond to the efficient frontier. Producti on scheduling must consider resource constraints. It is found that, without resource constrains, the portfolio with the highest expected profit can be preferred - even for a risk-averse decision-maker. When resource constrain ts are present, portfolios not corresponding to the maximum expected profit criteria will more frequently be preferred.