PORTFOLIO OPTIMIZATION IN ELECTRICITY TRADING WITH LIMITED LIQUIDITY

In principle, portfolio optimization in electricity markets can make use of the standard mean-variance model going back to Markowitz. Yet a key restriction in most electricity markets is the limited liquidity. Therefore the standard model has to be adapted to cope with limited liquidity. An application of this model shows that the optimal hedging strategy for generation portfolios is strongly dependent on the size of the portfolio considered as well as on the variance-covariancematrix used and the liquidity function assumed.optimization; electricity, liquidity; electricity trading; mean-variance-model

Mean-risk hedging strategies in electricity markets with limited liquidity

This article investigates mean risk hedging with respect to limited liquidity and studies the impact of different risk measures on the hedging strategies. For motivation and application purposes hedging in electricity markets is chosen, because the relevant hedging markets are characterized by limited liquidity. We enhance the approach in Woll and Weber (2015) to a mean-risk optimization under limited liquidity, including the risk measures absolute and relative Value and Conditional Value at Risk (VaR and CVaR). It can be shown that for position independent measures (Variance, relative VaR, relative CVaR) liquidity has no influence on the minimum risk hedging strategies, whereas for position dependent measures (absolute VaR, absolute CVaR) liquidity has an impact on the minimum risk hedging strategies. The article gives the mathematical formulations of the problems and discusses the economic relevance of the different models. In addition, we apply the analyzed concepts to the German Electricity markets

Modelling the impact of different permit allocation rules on optimal power plant portfolios

The electricity generation mix of many European countries is strongly dominated by fossil fuelled power plants. Given that CO2-emissions are responsible for a major part of the anthropogenic greenhouse effect, emission trading has been introduced in the EU in 2005. Under the European emissions trading scheme (ETS), the emission quantities of major industry branches, most notably the electricity industry are capped and a system of tradable CO2 emission permits is established. Although the effects of emission trading on emissions, industry structure and investment had been analysed on beforehand by a number of models, the impact of rules for primary permit allocation has so far hardly been focused on. This was mostly seen as a distributional issue not affecting the efficiency of the market mechanism itself. However a closer look at the permit allocation rules shows that the number of permits allocated to new plants often depends on their fuel and technology (e. g. in Germany). This may consequently have distorting effects on market prices and investment decisions, which so far have been hardly investigated quantitatively. In order to analyse such effects, a mixed complimentary programming (MCP) model is developed, which allows to model investment incentives in the electricity sector. It takes into account major power generation technologies, emission constraints, endogenous investment allocation rules and price elasticity of demand. In particular also the time-varying structure of electricity demand is accounted for and the corresponding distinction of base- and peak-load technologies. The model is applied to the EU-27 focusing on the year 2015, i.e. on the third trading period, where so far no decision has been made on the allocation rules to be applied. From this analysis we derive the average market prices for emission allowances and electricity and the optimal power plant capacities under different allocation schemes. In a pure environmental perspective the auctioning of permits is expected to be a first-best solution, but it could endanger the competitiveness and the security of supply of the European Union. The reason for the latter is that the generation mix becomes biased in favour of gas fuelled plants, which are associated with the least specific CO2-emissions, but have to be imported to a large extent from politically unreliable regions like Russia or the Middle East. The results of our analysis however show that allocating emissions for free, based on expected full-load hours and fuel specifics, will lead to higher CO2-prices whilst the effect of securing supply is only limited. Also electricity prices will only be slightly lower, so that the contribution of free allocation schemes to economic competitiveness is also limited.climate protection, security of supply, emission trading, allocation of emission permits, electricity markets, power plant portfolio

GAS STORAGE VALUATION UNDER LIMITED MARKET LIQUIDITY: AN APPLICATION IN GERMANY

Natural gas storages may be valuated by applying real options theory. However it is crucial, not to ignore that most evolving gas spot markets, like the German spot market, lack of liquidity. In this context, considering storage operators as price takers does not account for interdependencies of storage operations and market prices. This paper offers a novel approach to storage valuation taking into account the effect of management decisions on market prices. The within this paper proposed methodology determines the optimal production schedule and value by determining the stochastic differential equation describing the storage value and then applying a finite difference scheme. We find that limited liquidity lowers the storage value and reduces withdrawal and injection amounts. Further, we observe decreasing reservation prices for injection and withdrawing for growing illiquidity resulting in a left shift of injection and withdrawing threshold prices.natural gas valuation, limited liquidity

Disentangling irregular cycles in economic time series

Cycles play an important role when analyzing market phenomena. In many markets, both overlaying (weekly, seasonal or business cycles) and time-varying cycles (e.g. asymmetric lengths of peak and off peak or variation of business cycle length) exist simultaneously. Identification of these market cycles is crucial and no standard detection procedure exists to disentangle them. We introduce and investigate an adaptation of an endogenous structural break test for detecting at the same time simultaneously overlaying as well as time-varying cycles. This is useful for growth or business cycle analysis as well as for analysis of complex strategic behavior and short-term dynamics

Analyse abgestimmten Verhaltens in Tankstellenmärkten - Auswirkungen höherer Markttransparenz auf den Wettbewerb

Die Bundesregierung hat am 8. November 2012 die Einführung einer Markttransparenzstelle für Kraftstoffe beschlossen. Diese wurde im Herbst/Winter des Jahres 2013 vom Bundeskartellamt eingerichtet. Zahlreiche Beschwerden über nicht nachvollziehbare Preissetzungen und Oligopolmacht der großen Kraftstoffvertriebsunternehmen auf dem eng verflochtenen Kraftstoffvertriebsmarkt inklusive der Raffinerieebene hatten zur Einrichtung der Markttransparenzstelle geführt. Sie stellt den Autofahrern über Verbraucherinformationsdienste per Internet, Smartphone oder Navigationsgeräte im Minutentakt die aktuellen Kraftstoffpreise zur Verfügung. Das soll letztlich über mehr Transparenz zu niedrigeren Preisen an den Tankstellen führen. Dass dies nicht vollständig gelingt, zeigen die Ergebnisse der vorliegenden Studie

Sharing is not caring : backward integration of consumers

A new type of player occurs in the sharing economy: a vertically integrated consumer who owns production facilities and has direct market access, often termed “active prosumer”. The prosumer faces a trade-off between market transaction cost and substantial strategic potential to influence both market demand and supply by her decisions. We discuss optimal marketing and production decisions in light of this trade-off. An empirical application to the German-Austrian electricity market demonstrates substantial incentives for active market participation by recently added decentralized renewables production. Prosumers can achieve considerable profit increases by switching roles of net market supplier or customer

Search and equilibrium prices: theory and evidence from retail diesel

We examine the relation between consumer search and equilibrium prices when collusion is endogenously determined. We develop a theoretical model and show that average price is a U-shaped function of the measure of searchers: prices are highest when there are no searchers (local monopoly power) or when there are many searchers (and sellers opt to collude). We test this prediction with diesel retail prices in Dortmund, Germany. We estimate a U-shaped relation with statistical precision and a €.025/liter price variation due to the variation in the measure of searchers

Insights on physical behavior while working from home:An ecological momentary assessment study

Ever since the COVID-19 pandemic, working from home (WFH) has emerged as a common alternative work environment, but the possible influence on daily physical behavior (PB) (i.e., physical activity (PA), sedentary behavior (SB)) remains unclear. This study aimed to examine daily associations between PB and the work environment (i.e., WFH, working at the office (WAO)), as well as to explore and identify patterns of PB within each work environment. An observational study using a dual-accelerometer system to continuously assess PB for at least 5 days was conducted. The sample consisted of 55 participants providing 276 days of assessment. Additional demographic, contextual, and psychological variables were measured via baseline questionnaire and several smartphone prompts per day. To analyze the effects of the work environment on PB, multilevel analyses were conducted. For the identification of patterns within each work environment, latent class trajectory modelling was applied. Associations between the work environment and various PA parameters were found, indicating that WFH has a negative effect on MVPA time, steps, and physical activity intensity (MET), but a positive effect on short PA bouts (≤5 min). No associations between the work environment and any SB parameter (i.e., SB time, SB breaks, SB bouts) were found. Latent class trajectory modelling revealed three MVPA patterns for days WFH, and two patterns for days WAO. Given the growing prevalence of WFH and the positive health effects associated with MVPA, daily-tailored solutions to enhance MPVA while WFH are urgently needed.</p