**3.1. Electricity markets**

Since about two decades, the power industry had undergone a major restructuring in many countries. The former vertically-owned and centrally-planned electricity utilities have been unbundled in separate and independent business segments: the generation, transmission and distribution sectors. Unlike the latter two segments, which have remained as natural monop‐ olies under regulation, power generation is now a business subject to competition in the open marketplace [5].

Electricity is a commodity with some very distinctive features. First, modern societies are exceedingly dependent on a continuous delivery of electrical power, placing a very high value to supply reliability. Because electrical energy cannot be economically stored in considerable amounts, production and consumption must be continuously in perfect balance. In addition, power demand is nearly price irresponsive (inelastic) in the short-run. Therefore, power prices often escalate to very high quotes (price spikes) when supply/demand conditions are tight. Most of these circumstances are short-lived, e.g. equipment outages, transmission congestion climatic events, etc., and price rapidly reverse to normal levels [6].

The exceptionally high volatility of electricity prices imposes high financial risks when trading electricity and forces generation companies to make decisions and commitments under high uncertainty. Thus, stochastic modeling and optimal decision making under uncertainty are key tasks in modern power trading and power risk management [7].
