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Decomposition techniques in energy risk management

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2005
Sürücü, Oktay
The ongoing process of deregulation in energy markets changes the market from a monopoly into a complex one, in which large utilities and independent power producers are no longer suppliers with guaranteed returns but enterprisers which have to compete. This competence has forced utilities to improve their efficiency. In effect, they must still manage the challenges of physical delivery while operating in a complex market characterized by significant volatility, volumetric uncertainty and credit risk. In such an environment, risk management gains more importance than ever. In order to manage risk, first it must be measured and then this quantified risk must be utilized optimally. Using stochastic programming to construct a model for an energy company in liberalized markets is useful since it provides a generic framework to model the uncertainties and enable decisions that will perform well. However, the resulting stochastic programming problem is a large-scale one and decomposition techniques are needed to solve them.