A Novel CVaR Based Portfolio Optimization Model for LDC Electricity Procurement

Abstract

Based on the CVaR theory in financial risk field, a novel electricity-procurement portfolio optimization model for a local distribution company (LDC) is proposed, considering the risk and expected purchase cost synthetically. The conditional value at risk (CVaR) is used as the risk measurement index. The new model is applied to determine the electricity allocation ratio and efficient frontiers for the LDC in three markets. Simulation results demonstrate that the proposed model is correct, and it can guarantee the LDC to bear the minimum CVaR risk within a certain expected purchase cost. It provides an effective way for the LDC to make purchase decision and manage risks.