Managing electricity procurement cost and risk by a local distribution company

Chi Keung WOO, Rouslan I. KARIMOV, Ira HOROWITZ

Research output: Contribution to journalArticle

90 Citations (Scopus)

Abstract

A local electricity distribution company (LDC) can satisfy some of its future electricity requirements through self-generation and volatile spot markets, and the remainder through fixed-price forward contracts that will reduce its exposure to the inherent risk of spot-price volatility. A theoretical framework is developed for determining the forward-contract purchase that minimizes the LDCs expected procurement cost, subject to a cost-exposure constraint. The answers to the questions of "What to buy?" and "How to buy?" are illustrated using an example of a hypothetical LDC that is based on a municipal utility in Florida. It is shown that the LDCs procurement decision is consistent with least-cost procurement subject to a cost-exposure constraint, and that an internet-based multi-round auction can produce competitive price quotes for its desired forward purchase. Copyright © 2003 Elsevier Science Ltd. All rights reserved.
Original languageEnglish
Pages (from-to)635-645
JournalEnergy Policy
Volume32
Issue number5
DOIs
Publication statusPublished - Mar 2004

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electricity
Electricity
cost
Costs
Industry
Internet
market
distribution
exposure
price
contract
purchase

Citation

Woo, C.-K., Karimov, R. I., & Horowitz, I. (2004). Managing electricity procurement cost and risk by a local distribution company. Energy Policy, 32(5), 635-645. doi: 10.1016/S0301-4215(02)00317-8

Keywords

  • Electricity procurement
  • Cost risk management
  • Electricity market reform