The electricity Spot markets prices modeling: Proposal for a new mathematical formulation taking into account the market player strategy

Abstract

This paper proposes a new mathematical formulation in order to forecast electricity Spot prices. This approach is based on the supply-demand fundamental mechanism (fundamental approach). It is a multi-market and multi-producers stochastic model solved by a linear programming method. Since 2000, three classes of models are studied by “Electricité de France (EDF)” : the statistical method, the financial approach, and the fundamental approach. This proposal consists in introducing two classes of risk premiums in the mathematical formulation. The first class is based on the revenue margin concept allowing the producer to face uncertainties on his plant mix operations, or to make commercial benefit. The second class is based on the imbalance cost concept. These risk premium concepts represent a class of market player strategy.