On the Dynamics of Electricity Retail Prices: Multi-Market Equilibrium, Forward Market and Risk Management

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Farahat, Mohammad Reza | 2024

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 58052 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Fatemi Ardestani, Farshad; Hesamzadeh, Mohammad Reza
Abstract:
This thesis develops a multi-market equilibrium framework for analyzing retail electricity markets, with a focus on the interaction between the forward and spot markets under conditions of network uncertainty and renewable integration. We explore `the role of retailers’ hedging strategies, forward contract demand, and their impact on market efficiency. By modeling the forward price and the retailer’s optimal forward position under mean-variance preferences, we derive key equilibrium conditions for the spot, forward, and retail markets. Our results show that an increase in uncertainty leads to lower hedge ratios, even in the face of higher price variance. Numerical simulations using Monte Carlo methods demonstrate how different levels of uncertainty, including renewable integration and network congestion, affect the equilibrium prices and hedging decisions. The findings highlight the role of forward markets in mitigating market power and the importance of well-functioning retail competition in maintaining efficiency across wholesale and retail electricity markets
Keywords:
Computable General Equilibrium ; Energy Retailing ; Electricity Market ; Hedging ; Forward Markets ; Risk Management ; Multimarket Equilibrium

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