Investment criteria and risk calculation in regional electricity trading

Abstract

Paper focuses on regional market and signals to market participants regarding investments and risk management in cross-border electricity trading. Choice of additional criteria for optimal power system expansion depends on several indicators like number of congested hours, congestion costs, maximization of social welfare, complex and simple investment indicator, optimization of the distribution of transmission capacities among the different timeframes, improved security of supply and others. It is possible to use combination of incentive schemes into one index for cross-border trade. Methodology of risk calculation for few trading areas includes use of financial transmission rights (FTR) like weighted average of prices for several areas, respectively. An FTR relates to a zone-to-zone transaction, without having to specify by what route the electricity travels from one zone to the other. This benefits both the Transmission System Operator (TSO) in being able better to calculate ATC (Available Transmission Capacity), and the user, as not having to worry about the specific route either. A market in financial derivatives organized by third parties can offer cross-border hedging possibilities for market participants like CfD (Contract for Differences).