A Margin Design Method Based on the SPAN in Electricity Futures Market Considering the Risk of Power Factor

Abstract

On-grid integration of renewable energy, also called “green power”, is attracting more and more attention nowadays. Green power futures can be effective in increasing returns to suppliers and increasing market liquidity. However, compared to traditional futures, green power feed-in tariffs may be subject to integrity problems due to lower power factors; therefore, existing margin calculation methods for the futures market are no longer applicable. A SPAN-based margin calculation method that considers the power factor risk is proposed in this paper. The method provides the classification policies of the green power futures, based on the historical power factors of green power suppliers, and allows the margin amount to be adjusted as per the classification. To verify the effectiveness of the proposed method, empirical validation is presented by applying actual transaction data. Results prove that the proposed method can reduce the margin amount while covering the risk effectively.