Agent-Based Simulation of Electricity Markets: Risk Management and Contracts for Difference

  • Fernando LopesEmail author
  • Hugo Algarvio
  • João Santana
Part of the Understanding Complex Systems book series (UCS)


Electricity markets (EMs) are a relatively new reality and also an evolving one, since both market rules and market players are constantly changing. Market participants can purchase and sell electrical energy through centralized markets and bilateral contracts. The revenue and cost certainty associated with bilateral contracts presents a number of benefits to producers and consumers, notably price stability and mitigation of market power. An agent-based modeling and simulation approach presents itself as a promising approach to model power markets. Accordingly, this chapter presents several key features of software agents able to negotiate bilateral contracts—both forward contracts and contracts for difference (CFDs). The chapter also presents a case study aiming at analyzing the role of CFDs as a financial tool to hedge against pool price volatility. The results of four different simulations involving CFDs and compensations are compared with a “no-compensation” base case involving a forward contract, allowing us to conclude that CFDs can be a useful financial tool for producers, especially when market prices drop to (or below) their marginal cost of production.


Market Participant Electricity Market Reference Price Strike Price Spot Market 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.



This work was performed under the project MAN-REM (FCOMP-01-0124-FEDER-020397), supported by both FEDER Funds through the program “COMPETE−Programa Operacional Temático Factores de Competividade” and National Funds through “FCT−Fundação para a Ciência e a Tecnologia”.


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Copyright information

© Springer International Publishing Switzerland 2017

Authors and Affiliations

  1. 1.LNEG−National Research InstituteLisboaPortugal
  2. 2.Instituto Superior TécnicoUniversidade de LisboaLisboaPortugal
  3. 3.INESC-IDLisboaPortugal

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