Modeling and pricing of block flexible electricity contracts

This paper presents a model for block flexible electricity contracts (BFEC) and focuses on pricing the BFEC based on the principle of no-arbitrage. Energy is traded in blocks according to its time duration at different block prices, which is called block trading. The BFEC requires the buyer or the seller to schedule its trading amount and the certain block of power at each time interval. The block trading needs to divide the power into several blocks, the prices of each power block are obtained from market clearing price. By using the autoregressive model AR(n) as stochastic block price model, an optimal scheduling strategy can be achieved by stochastic dynamic programming. The price of BFEC is determined by the variables and schedule of the BFEC. Contracts with different choices of block are studied and the simulations illustrate the block flexible electricity contracts can improve power market efficiency.

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