Risk management with an improved capacity payment mechanism based on system dynamics modeling in electricity market

in the last few decades, the electricity industry has experienced restructuring in many countries and has moved towards liberalization. This restructuring has presented the power industry with serious challenges. The most important challenge is long-term decision-making and planning for investment under numerous risks and uncertainties. Risk aversion of investors have significant effects on their decisions. After the liberalization, construction of generation no longer depends on utility-based centralized producers and minimized their cost, but rather on the result of liberalization investment decisions made by investors whose goals are to maximizing their own profits. In order to gain significant insight into the long-term behavior of liberalized power markets, in this paper, a simulation model based on the system dynamics is proposed and the underlying mathematical formulations discussed then it examined the impact of risk on the long-term behavior of current market investors and presented that the risk-averse investor creates large fluctuations in market capacity. And then, in order to manage risks, presented an improved capacity payment to create an incentive for investors, the market regulators imposed this mechanism on covering the whole or part of the cost of investment. With this method, the impact of risk on investors’ decisions are reduced and the level of market capacity is controlled and the market price fluctuations reduced.

کلیدواژه ها:

Risk ، Risk Management ، System Dynamics ، Investment ، Improved capacity payment ، Electricity Market.