Robust hedging of electricity retail portfolios with CVaR constraints

This paper suggests a way for electricity retailers to build their supply portfolios, calibrating their exposure to physical and financial contracts, in order to hedge from risks that variously affect the supply side in power markets. In particular, we formulate an allocation model which describes uncertainty sources using the robust approach originally introduced by Soyster (1973), and we provide an explicit form to robust risk constraints. The notable elements of innovation of this paper include: (a) the focus on the optimization problem faced by retailers, which is generally less explored than its counterpart in the generation side; (b) the analysis of uncertainty sources through the robust optimization paradigm, and (c) the representation of robust constraints based on Conditional Value at Risk (CVaR).