Portfolio Strategy of Power Producer Considering Energy Storage in Spot Market, Ancillary Market and Option Market

The volatility of electricity price brings huge risks and challenge to the electricity market. Financial derivatives that can be used for risk management and to solve the risks faced by power producers when participating in electricity market transactions. The purpose of this paper is to propose a portfolio strategy of the power producer to earn profits and hedge risks in three electricity markets, namely, the spot market, the ancillary market and the option market. In view of the role of energy storage in storing electricity, the energy storage is considered in this paper to enable power producer to purchase energy storage at a lower price, and then sell electricity at a higher price in the future to earn profits. First of all, this paper establishes the profit models of three markets, respectively. Then, based on the mean-variance portfolio theory, a portfolio strategy for power producer to participate in the three markets are formed. Finally, the numerical simulation is based on the data of the Australian electricity market in 2022. It has been found that the profit obtained by power producer participating in three markets (the spot market, the ancillary market and the option market) using the proposed model is 24.4% higher, while the risk is 36.4% lower comparing with the case that power producer only participates in one market.