Portfolio Optimization Applied for Wholesale Electricity Spot Market (Wesm) Based on Markowitz Theory
Mohammadreza Ghorbaniparvar1, Fatemeh Ghorbaniparvar2

1Mohammadreza Ghorbaniparvar, E.E. Department, Mapua Institute of Technology, Manila, Philippines.
2Fatemeh Ghorbaniparvar, I.C.T Department, Iran University of Science & Technology, Tehran, Iran.
Manuscript received on January 07, 2013. | Revised Manuscript received on January 11, 2013. | Manuscript published on January 15, 2013. | PP: 14-19 | Volume-1, Issue-2, January 2013. | Retrieval Number: B0117011213//2013©BEIESP 
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© The Authors. Published By: Blue Eyes Intelligence Engineering and Sciences Publication (BEIESP). This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)

Abstract: With the introduction of deregulation, the electricity market has turned from a monopoly market to a free market, while electric power distributor companies are facing a problem of designing the optimal portfolio in a competitive electricity market. Notionally, the portfolio selection problem can be solved by assigning requirement capacities to the spot market and bilateral contracts. This paper objective is to introduce a novel approach in order to address the electric power distributor companies’ portfolio selection problem. Since electricity pricing is volatile and there is no ways to store electricity, this portfolio varies from a financial portfolio. The mathematical formulations and forecasted price of different asset returns for both the long term and the spot market portfolio selection have been derived according to Markowitz Modern Portfolio Theory. Moreover, we applied the data which comes from Manila Electric Railroad And Light Company (MERALCO) for different assets in this paper. Multiple Linear Regression Considering Explanatory Variables is employed to forecast the price of the spot market which is Wholesale Electricity Spot Market (WESM) in this paper. The portfolio selection problem for MERALCO is finally formulated as optimization problem, which can be solved by Genetic Algorithm (GA) in MATLAB and Microsoft Office Excel
Keywords:  Portfolio Selection, Spot Electricity Market, Forward Contract, Futures Contract, GA.