The electricity market, and more generally
the energy market is evolving in manners few
would have predicted. The crisis in California,
the collapse of the largest trader (Enron)
etc. are events that confirm that bulk power
markets are highly volatile. Decision making
in such an environment calls for the development
of Stochastic Programming models that allow
for hedging . In this research,
we apply very large stochastic programming
to choose the appropriate mix of forward contracts,
and other financial instruments that can provide
investment guidance to power companies. The
model coordinates the financial aspects of
decision-making with generation costs, and
provides a rather comprehensive approach to
power portfolio optimization. We have devised
new algorithms to overcome difficulties arising
from practical considerations such as production
costing, risk control, and uncertain forecasts.
