Procurement of network loss — System operators as traders?

Abstract

European network operators are responsible for covering and procuring the electricity lost on their grid. The authors introduce a transparent and reproducible method to model a risk averse trader behavior. The main elements of procurement cost and the resulting energy tariff for network operators are identified and estimated. The presented price calculation model is based on publicly available power exchange data and uses a Value-at-Risk model to assess the risks associated with electricity trading. Based on the provided method the cost of network loss procurement can be estimated and justified. Finally, the authors propose a framework of tenders to increase transparency and promote competition between traders participating in network loss tenders.