Optimization of electricity futures and LNG futures trading under practical constraints of power producers in Japan

Abstract

In this study, we developed a mixed-integer programming model that can help maximize the profit of the gas-fired power generation business in Japan. Owing to the practical constraints of liquefied natural gas (LNG) cargo, LNG tank, and power generating unit, Japanese gas-fired power producers are currently unable to effectively utilize the futures market. By using this model, power producers can calculate the optimal futures position and the number of spot LNG cargoes to buy/sell in response to the daily changing forward spark spread. The numerical simulation shows that the optimal electricity futures position decreases in a step-wise manner against the electricity futures price.