Mixed supply function-Cournot equilibrium model of futures and day-ahead electricity markets

Abstract

Futures contract is one of the useful financial derivatives for hedging the market players against the risks of undesirable price fluctuations in the power systems. Market players are allowed to trade electric energy in both futures and day-ahead electricity markets. The behaviour of market players in each market affects the prices and power transactions of the other market. In this study, the mutual impacts of the futures and day-ahead electricity markets are studied using a mixed supply function-Cournot equilibrium model. The day-ahead electricity market is modelled by Cournot method and futures market negotiations are modelled by the supply function method. The proposed model considers the strategic behaviour of consumers in the futures market, mark-to-marketing (MTM) settlement in the futures market, dynamics of market players’ behaviour during the trading period, and transmission system constraints. An upgraded risk management method is also introduced and evaluated. The proposed model is applied to a test system and the impacts of different parameters on the results are discussed.