A looming revolution: Implications of self-generation for the risk exposure of retailers

Abstract

Managing the risk associated with uncertain load has always been a challenge for retailers in electricity markets. Yet the load variability has been largely predictable in the past, especially when aggregating a large number of consumers. In contrast, the increasing penetration of unpredictable, small-scale electricity generation by consumers, i.e. self-generation, constitutes a new and yet greater volume risk. Using value-at-risk metrics and Monte Carlo simulations based on German historical loads and prices, the contribution of decentralized solar PV self-generation to retailers' load and revenue risks is assessed. This analysis has implications for the consumers' welfare and the overall efficiency of electricity markets.

Complementary business models for distribution system operator in a peer-to-peer electricity market

“…The emergence of P2P energy trading frameworks threatens the sustainable revenue of the DSO and energy retailers (18%-74% decrease as pointed out in [5]), mainly from load risk and price risk [6]. The traditional business model of electric utility is based on electricity production and supplying to the public through the electric grid, charging the customer a price per kilowatt-hour of electricity that allows for the recovery of fixed costs, operation expenses, and a rate of return on their investments.…”

Short term Markov corrector for building load forecasting system – Concept and case study of day-ahead load forecasting under the impact of the COVID-19 pandemic

“…On the consumption side, we also acknowledge a strong and continuous increase in terms of power demand, but also in terms of energy efficiency and conjunction with other types of energy (i.e. multi-energy system) [3] .…”

Short-term risk management of electricity retailers under rising shares of decentralized solar generation

“…With large-scale renewable generation, day-ahead predictions on high levels of renewable energy increase the risk-related hedging pressure of generators. Furthermore, with distributed renewable generation, growing renewable power production raises the hedging needs of retailers (Koolen et al, 2021), particularly when considering rooftop solar PV installations (Russo and Bertsch, 2020). The deployment of rooftop solar PV systems has significantly expanded in recent years, mostly by virtue of supporting policies, such as net metering and fiscal incentives.…”

“…Conejo et al, 2010;Yang et al, 2017). Whereas the potential for risk transfer through derivative products can rise significantly for wind power, hedging solar risk is likely to remain difficult (Hain et al, 2018), mainly for retailers increasingly exposed to the volume risk driven by growing levels of solar PV self-generation on the demand side (Russo and Bertsch, 2020;Koolen et al, 2021). The variability of the electricity demand, its shortterm inelasticity, and the supply rigidity expose retailers to a real-time volume risk, which is more complex to hedge within the day-ahead market, since high differences can emerge between predictions in the day-ahead and intraday market.…”

“…The empirically observed positive correlation between price and load in wholesale electricity markets (e.g. Deng and Oren, 2006;Weron, 2007;Gelabert et al, 2011) implies an increasing short-term risk exposure for the retailers, depending on the difference between spot and retail prices (Willems and Morbee, 2010;Aïd et al, 2011;Dagoumas et al, 2017;Russo and Bertsch, 2020). With increasing penetration of rooftop solar PV systems and greater intraday uncertainties, imbalance costs are expected to raise for retailers, thus leading to potential financial distress for retailers who fail to hedge properly.…”