Inherent Supply Risk of Electricity Futures to Electricity Market

Abstract

Electricity futures exchange is usually regarded as a valuable way to reduce price volatility of electricity market, but its risk to the equilibrium of the market is almost neglected; therefore, it is impossible to find out a workable approach to avoid the impact from supply and demand to electricity market. However, it is so important that it should not be avoided. In view of the case, this paper mainly researches the power plantspsila feasible allocation strategies of generation capacity and their maximum profits with concerning the introduction of electricity future. The models are constructed in this paper concerned both of electricity future being and not. On the basis of comparison, the paper shows that the future transaction will initiate the imbalance between supply and demand of electricity; in the meanwhile, the paper finds that there is a sole optimal strategy for power plants to increase their profits, and the strategy is a Nash-equilibrium. These mean that although transaction of electricity futures is helpful to improve the efficiency of electricity markets from the view of the price, it will bring about direct impact on the equilibrium between supply and demand; therefore, it is necessary to redesign the transaction rules and regulation for being on guard against the impact.