A Study On The Risk Aversion And Its Influence On Market Power In Electricity Market

Since the 1980s, many countries have carried out the reformation of the electricity market, breaking the traditional vertically integrated monopoly structure down and promoting competition to improve the efficiency of the market. Since 2002, China has begun to reform the electricity market. After the reformation, market traders face random price risk and regional price risk. To avoid price risks, the financial instrument was introduced into the electricity market. By adopting forward contracts, random price risk can be hedged, and by applying financial transmission rights, regional price risk can be avoided. The electricity market structure is oligopolistic, so generators have market power more or less. Many scholars have studied the issues of risk aversion and market power control in electricity market. However, what effects the introduction of financial instruments has upon the market power of generators in addition to risk aversion? The research in this area is still at the exploratory stage, for widely-accepted research results have not been achieved.This paper first analyzes the characteristics of the electricity market and introduces the theory of locational marginal pricing and how the financial transmission rights and contracts for differences avoid the price risk. Based on the summary and references of the research results both at home and abroad, this paper systematically analyses how forward contracts and financial transmission rights take effects on market efficiency.This paper also studies the ongoing electricity market reform in China.â‘ The impact of forward contracts on competition is discussed. In the deregulated electricity market, contracts market can hedge the risk of the price fluctuation. This paper studies how contract for differences affects the possibility of tacit collusion between power plants. In this model power plants compete in quantities complying with trigger strategies which trading electric energy in the infinite interchanging contract and spot market. The results show: if the punishment leads the market to perfect competition equilibrium, the forward market will increase the possibility of tacit collusion. The power plants will get zero profit after the penalty of perfect competition. The penalty will prevent the occurrence of deviation from tacit collusion. If the punishment leads the market to Cournot equilibrium, the two-way CFDs have pro-competition effect, while the one-way CFDs have no effect on tacit collusion.â‘¡Research on the relationship between financial transmission rights(FTR) and the market power of the generators. In this thesis, by solving the market equilibrium before and introducing transmission rights after, the relationship between FTR and the market power of generators is researched in terms of market structure and generators'location respectively. The results show: 1) FTR will mitigate the market power of generators in exporting region markedly, thus the market price will reduce by 6%; while the FTR will increase the market power of generators in an importing region slightly, thus the market price will increase by 40%. 2) FTR will increase the market power of generators in all three models (Cournot, Stackelberg and Forchheimer models). Specifically, FTR has the greatest market power in the Cournot model and the least in the Forchheimer model.â‘¢Analysis of the motivation of Direct-power-purchasing for large consumers. Considering the actuality of China's electricity market, based on the latest regulation on Direct-power-purchasing, this paper developed benefit mathematic models for large consumers and power plants, finally analyzed the risks for them and deduced the necessary of participate condition in Direct-power-purchasing market. The results show: the internal length of trading price is inversely proportional to the quantity of direct-purchasing. The greater the price interval is, the smaller the ratio of the quantity of Direct-power-purchasing is. Therefore, the forecasting accuracy of the quantity of Direct-power-purchasing determines the degree of difficulty of negotiation.â‘£Research on decision of large consumers'direct-purchasing based on CVaR. In the Direct-power-purchasing electric market, when the quantity of demand is not equal to the quantity of contract, the large consumers will be punished. Supposing the quantity of demand is random, this paper takes the CVaR as risk measurement index to construct the optimal model. The results show: there is a positive relation between the discrimination price and the quantity of Direct-purchasing. With the increase of on-grid price,it exerts increasing less influence on the quantity of Direct-power-purchasing. The more accurate the larger consumers'prediction is, the less sensitive the quantity of Direct-power-purchasing reacts to the adjustment of the national electricity price policy.