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Risk-optimized pooling of intermittent renewable energy sources

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  • Gersema, Gerke
  • Wozabal, David

Abstract

Many photovoltaic and wind generation capacity owners gain access to power markets by signing up with virtual power plants. Power generation from these renewable sources of electricity is inherently uncertain and, consequently, revenue is random, which induces a risk for the owner. In this study, we investigate to what extent pooling different technologies and locations in the portfolio of a virtual power plant can reduce aggregate risk. To this end, we develop stochastic models for factors driving the assets’ underlying market and volume risks on which we base a model for risk-optimized pooling. Using the German market as an example, we demonstrate that optimal portfolios have a clearly better risk/return profile than the market portfolio. This finding holds in the case without subsidies as well as the case with feed-in tariffs.

Suggested Citation

  • Gersema, Gerke & Wozabal, David, 2018. "Risk-optimized pooling of intermittent renewable energy sources," Journal of Banking & Finance, Elsevier, vol. 95(C), pages 217-230.
    • Handle: RePEc:eee:jbfina:v:95:y:2018:i:c:p:217-230
    DOI: 10.1016/j.jbankfin.2017.03.016
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Lingge & Yang, Dong & Wu, Shining & Luo, Meifeng, 2023. "Revisiting the pricing benchmarks for Asian LNG — An equilibrium analysis," Energy, Elsevier, vol. 262(PA).
    2. Han, Chanok & Vinel, Alexander, 2022. "Reducing forecasting error by optimally pooling wind energy generation sources through portfolio optimization," Energy, Elsevier, vol. 239(PB).
    3. Vinel, Alexander & Mortaz, Ebrahim, 2019. "Optimal pooling of renewable energy sources with a risk-averse approach: Implications for US energy portfolio," Energy Policy, Elsevier, vol. 132(C), pages 928-939.

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    More about this item

    Keywords

    Market integration of renewables; Power markets; Intermittency; Variable renewables; Wind and solar power; Virtual power plant;
    All these keywords.

    JEL classification:

    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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