Call-options in Peer-to-Peer Energy Markets

Abstract

This paper proposes the novel application of calloptions for financial loss mitigation in a peer-to-peer (P2P) energy market. P2P energy markets present the opportunity for endusers to trade electricity among themselves by managing their electricity usage and production capabilities. But variability characteristics of renewable resources pose a fundamental challenge to their integration into the grid as well as participating in emerging P2P energy markets. The growing penetration of renewable supply will increase the need for tools to mitigate potential energy traders' financial losses. This paper proposes and evaluates the application of call-option contracts in P2P markets to hedge against financial losses related to power shortfall in renewable supply. A case study is presented, showing that P2P traders might have to bear financial losses when they cannot meet their market obligations, and how options can be used to mitigate such losses.