Financial Risk Management For Grid Corporation In Power Market

Grid corporations always think about how to maximize their profits. However, in the market there exist not only expected profits, but also enormous financial risks. Therefore, it is critical for grid corporations to manage potential financial risks. Fluctuation of the electricity price, which is one of the kernel questions in the market, often results in financial risk. This thesis will discuss grid corporations'financial risks based on fluctuation of the electricity price, and calculate the Value at Risk, and then bring about a strategy to manage the risks.Basic categories and concepts of financial derivatives are introduced at first, and then applications of forward contracts, future contracts and option contracts to the power market are discussed. The grid corporations'financial risks are also presented based on the research of the financial risks and their categories in derivatives market.In this thesis, the definition of VaR and two methods for calculating called historic simulation and Monte Carlo simulation are presented successively, and then veracity verify of VaR is discussed.The difference of price fluctuations between in future market and in spot market causes vast financial risks for power suppliers. This thesis gives a model by calculating VaR, which select an objective function of minimum VaR, and discuss electricity purchasing in two markets at the optimization of total cost and risks. Analytical solutions are obtained and the numerical simulation results are presented with the actual market data.At last electricity price uncertain due to load forecast uncertainty is analyzed through VAR calculation. In order to obtain the relation of load forecast and electricity price, Monte-Carlo Method is used in the modeling of risk evaluation. The VaR of price based on load forecast uncertainty is calculated, and the reasonable price with the minimum risks is obtained.