Flexible Forward Contracts for Renewable Energy Generators in Deregulated Electricity Markets

We develop a flexible forward contracting mechanism for renewable generators with intermittent and uncertain power supply. Such a contract allows the renewable generators to engage in forward contracts in day-ahead markets with flexible loads. In our proposed contracting mechanism, the renewable generator is allowed to deviate from the committed power amount as long as it satisfies certain conditions on load flexibility and cumulative energy at different time intervals. Using appro- priately constructed models for forecasting wind power and real time electricity prices, we evaluate the revenue benefits for windfarms from using the proposed contracts as compared to the fixed for- ward contracts or from bidding in the real time markets. We demonstrate that the transaction price of such flexible contracts can be set lower than the day-ahead market price, due to the embedded option of increased flexibility in the contract. This would result in a reduced cost of electricity for flexible loads