Pricing Model And Applied Research For Northeast Electricity Market

With the depth implementation of electricity reform, formulating a reasonable price of electricity has become the primary problem of China's power industry reform. The reform and development of China's power industry over the past decade has created an operating environment of the electricity market and built a platform for running the electricity market through the regional electricity market, which created conditions for electricity transaction in our country. As the country's first pilot regional electricity market,we can clearly see from its construction and operation that the pricing electricity price is always the top priority issue of Northeast regional electricity market,according to its long-term construction objectives and the reform. This paper presents the electricity pricing model for Northeast electricity market and the strategy of hedging risk for price fluctuation.Firstly, this article introduces the status of the Northeast electricity market and the related theory, including Brownian motion and its properties. Brownian motion as a random process of a continuous-time parameter and continuous-state space, is a basic, easy and most important stochastic process. And it usually can be seen as a promotion of a sense. It is one of the most well know and the most colorful random process by far.About studying the price fluctuation of Northeast electricity market, we find that electricity price volatility is much higher than other commodity price, as the power should not be stored in large scale, supply and demand must balance in real time, as well as affect by supply and demand and generation capacity constraints, the spot price is almost entirely dependent on the real-time supply and demand, which resulting in electricity price soaring. Then we get the characteristics of price fluctuations by analyzing a large amount of data obtained: random, fluctuations, with a certain amount of revenue, and we proof that Northeast Electric price subjects to Brownian motion. Above all, we propose electricity pricing model, so that we can come up with a reasonable price of electricity.Because the electric power supply exceeds demand in Northeast area, the electricity price risk will be quite obvious, and we could not pricing electricity price exactly for there are so many things would be unable to predict, therefore we need to take the corresponding measure to hedge this kind of risk. This article introduces the concept of commodity exchange, and its substance is that: both sides of transaction agree to exchange cash flow related commodity price for hedging price risk. Here, cash flow in the actual commodity market and in the exchange trading market is relatively independent. Therefore, it is in fact able to be used in energy products such as electricity market. That to say, we will apply commodity exchange transaction to study two kind of situation how to make strategy: 1. Exchange contract between power plant and user; 2. Exchange contract between power plant and coal production enterprise.Then we carry on simulation by using the Monte-Carlo for the model, simulate the price in 2005 according to the electricity price in the year of 2004, and compare with the actual price of 2005's, draw the following conclusion:1. According to analyzing the price getting from the model, which is fitting in a certain extent with actual electric power price, we can say that the model conform to forecast the electricity price for the Northeast electricity market;2. The result also means that the accuracy of forecasting model established in this paper; 3. The simulation result is deviation from actual price because of unpredictable factors external and internal of the occurrence, so that can be accepted.The innovations in this article are as follows:1. Through the research of electricity price in the Northeast electricity market, obtains its characteristic, in order to seek for the appropriate pricing method;2. According to the actually situation, establish pricing model which is stemming from the finance mathematical model and obtain the reasonable price;3. Utilization forward contract and commodity exchange contract guarantees the income of power plan. Although this article has carried on some beneficial explorations, there are also a lot of questions have to be further solved.1. There are still some factors have to be taken into account in the model, so it need improvement;2. The further study is the reason and the mechanism caused by electricity market risk, establish fixed price strategy conforms to our country electric power market.