Optimizing natural gas supply and energy portfolios of a generation company

Abstract

In a deregulated electricity market environment, a natural gas-fired generation company must manage its natural gas supply and construct energy portfolios by engaging in contracts to buy natural gas and generate electricity. The contracts protect the company from fluctuations in prices and demands, but provide minimal profits. The company may gain larger profits-and possible loses-by accessing natural gas spot and electricity pool markets. To capture such hedging decisions and the interactions between the natural gas and electricity markets, we formulate a Stochastic Programming model and study its benefits over an expected value problem. The stochastic model enables the company to optimize the electricity generation schedule and the natural gas consumption as well as to develop managerial insights.