A risk decision model of the contract generation for hydropower generation companies in electricity markets

The contract trade could efficiently avoid risk from the violent fluctuation of spot price in electricity markets trade. However, there exists risk in the implementation of contracts for hydropower generation companies (GenCos), such as the risk of failing to fulfill the contract volume caused by the uncertain inflow of reservoirs. A risk decision model of contract volume based on the uncertainty of inflow and hydropower units’ efficiency is proposed for decision-supporting in contract volume negotiation for hydropower GenCos. The uncertainty descriptions of inflow and hydropower units’ efficiency are provided in a novel way. In the model, the “risk”, that is the probability of failing to fulfill the contract volume with a given tolerance degree is defined and formulated. Two types of decision-making procedures, which are suitable for individual decision-making and group decision-making respectively, are introduced. The formula of the risk calculation using the first-order second-moment (FOSM) method is deduced. An approach is suggested to calculate the statistical characteristics of generating flow. The results of application in a hydropower station in the southeastern coast of China show that the model is effective and reasonable for decision-making support.

► The failure risk in hydropower GenCos’ implementation of contracts is identified.
► A risk decision model of contract volume is proposed for hydropower GenCos.
► The uncertainty descriptions of inflow and hydropower units’ efficiency are provided.
► Two decision-making procedures for individual and group respectively are introduced.
► The first-order second-moment method is employed to deduct the formula of risk.