Equilibrium price in intraday electricity market

Mer, 15/12/2021 - 10:30 / 11:30

209, Viale Romania

Speaker: René Aïd , Université Paris Dauphine

Abstract

We formulate an equilibrium model of intraday trading in electricity markets. Agents face balancing constraints between their customers consumption plus intraday sales and their production plus intraday purchases. They have continuously updated forecast of their customers consumption at maturity. Forecasts are prone to idiosyncratic noise as well as common noise (weather). Agents production capacities are subject to independent random outages, which are each modeled by a Markov chain. The equilibrium price is defined as the price that minimizes trading cost plus imbalance cost of each agent and satisfies the usual market clearing condition. Existence and uniqueness of the equilibrium are proved, and we show that the equilibrium price and the optimal trading strategies are martingales. We present some economic insights on the trading strategies and the volatility structure. We show in particular how heterogeneity between agents generates the Samuelson's effect. Joint work with Andrea Cosso and Huyen Pham.