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OptHedge
The OptHedge model is a computational tool to develop an energy contracting strategy for distribution companies in the short-term, considering uncertainty in the demand growth and the available risk management instruments in the regulated market (existing energy auction, MCSD, MCSD 4%, etc).
Given the existing contract portfolio of the company and the uncertainty in future demand, the model determines the amount of energy that should be contracted in energy auctions in order to meet the future demand (given its uncertainty) but minimizing the tariff for consumer and costs for the distribution company. The individual characteristics of each contract, in terms of prices and horizons, are considered. Therefore, the value of the flexibility and pricing of the uncertainty (trade-off between expensive , but flexible, contracts, against cheaper, but inflexible, ones) can be captured by the model.
The optimal contracting strategy is formulated as a multi-stage stochastic optimization problem, where demand uncertainty is represented as a scenario tree, built from the following user information: (i) load growth scenarios with transition probabilities associated (modeled through a Markov process) and (ii) number of ramifications (nodes) for each stage of the period.
The OptHedge model uses Excel interface for data input and a commercial solver for the solution of the programming problem. The results are also provided through Excel spreadsheets, and are easily viewed buy the user.
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