Electricity retail price in competitive market using the risk-adjusted capital asset pricing model (CAPM): A case of Thailand

Abstract

Competitive environment in electricity retail sector helps to promote the efficiency of electricity demand and also provides preferred and affordable electricity price for the customers. However, due to the variation of Market Clearing Price (MCP) in the power supply market there is a hardly avoidable risk for the Electricity Retail Company. The overall objective for this study is to determine and perform preliminary analysis of an efficient electricity retail price in competitive market by using quantitative methods. Capital Asset Pricing Model (CAPM) is used for the financial analysis, while risk factor has been considered by using Risk Adjustment Recovery on Capital (RAROC). According to the using of CAPM and RAROC, the retailer company is expected to make highest return to the investment at the retail price of $24/MWh and is expected to bear highest risk of loss at the retail price of $25/MWh. Moreover, few recommendations are suggested for future work such as adding more variables cost, include transmission and distribution service charges within retail price, and demand bidding should be also integrated for bidding up the MCP.