Comparing the risk profiles of renewable and natural gas-fired electricity contracts
AbstractElectricity policymakers, industry participants, analysts, and even consumers have become acutely aware of the ever-present risks that face the delivery of electricity. Recent instability in the electricity industry illustrates the need for thoughtful resource planning to balance the cost, reliability, and risk of electricity supply. This article evaluates the relative risk profiles of renewable and natural gas generating plants. It does so by analyzing how six different risks are allocated and, if possible, mitigated in long-term power purchase contracts, taking as a contract sample 27 agreements signed by the California Department of Water Resources in 2001. This assessment illustrates some of the significant differences between the risk profiles of natural gas-fired and renewable generation. Renewable energy contracts are shown to provide the most value relative to natural gas-fired contracts by mitigating fuel price and environmental compliance risks. Gas-fired electricity contracts typically provide better protection against short-term demand risk. When it comes to fuel supply, performance, and regulatory risks, the relative value of renewable and gas-fired contracts is ambiguous. We conclude that a better understanding of risks and risk allocation practices will help utilities, regulators, and others make more objective decisions in the future when selecting between renewable and gas-fired electricity supply.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Renewable and Sustainable Energy Reviews.
Volume (Year): 8 (2004)
Issue (Month): 4 (August)
Contact details of provider:
Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/600126/description#description
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Repetto, R. & Henderson, J., 2003. "Environmental exposures in the US electric utility industry," Utilities Policy, Elsevier, vol. 11(2), pages 103-111, June.
- Stirling, Andrew, 1994. "Diversity and ignorance in electricity supply investment : Addressing the solution rather than the problem," Energy Policy, Elsevier, vol. 22(3), pages 195-216, March.
- Andrews, Clinton J & Govil, Shivani, 1995. "Becoming proactive about environmental risks : Regulatory reform and risk management in the US electricity sector," Energy Policy, Elsevier, vol. 23(10), pages 885-892, October.
- Roques, F.A., 2007.
"Technology Choices for New Entrants in Liberalised Markets: The Value of Operating Flexibility and Contractual Arrangements,"
Cambridge Working Papers in Economics
0759, Faculty of Economics, University of Cambridge.
- Roques, Fabien A., 2008. "Technology choices for new entrants in liberalized markets: The value of operating flexibility and contractual arrangements," Utilities Policy, Elsevier, vol. 16(4), pages 245-253, December.
- Adrien de Hauteclocque & Jean-Michel Glachant, 2008.
"Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy,"
0816, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Hauteclocque, Adrien de & Glachant, Jean-Michel, 2009. "Long-term energy supply contracts in European competition policy: Fuzzy not crazy," Energy Policy, Elsevier, vol. 37(12), pages 5399-5407, December.
- Jean-Michel Glachant & Adrien de Hauteclocque, 2009. "Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy," EUI-RSCAS Working Papers 6, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
- Jean-Michel Glachant & Adrien de Hauteclocque, 2009. "Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy," RSCAS Working Papers 2009/06, European University Institute.
- Gustavo A. Marrero & Luis A. Puch & Francisco Javier Ramos-Real, 2010. "Riesgo y costes medios en la generación de electricidad: diversificación e implicaciones de política energética," Economic Reports 13-2010, FEDEA.
- Edmar Luiz Fagundes De Almeida & Luciano Losekann & Gustavo Marreiro & Francisco Javier Ramos-Real, 2014.
"Efficient Power Generating Portfolio Inbrazil: Conciliating Cost, Emissions And Risk,"
Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting]
134, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Losekann, Luciano & Marrero, Gustavo A. & Ramos-Real, Francisco J. & de Almeida, Edmar Luiz Fagundes, 2013. "Efficient power generating portfolio in Brazil: Conciliating cost, emissions and risk," Energy Policy, Elsevier, vol. 62(C), pages 301-314.
- Roques, Fabien A. & Newbery, David M. & Nuttall, William J., 2008. "Fuel mix diversification incentives in liberalized electricity markets: A Mean-Variance Portfolio theory approach," Energy Economics, Elsevier, vol. 30(4), pages 1831-1849, July.
- Perez, Yannick & Ramos-Real, Francisco Javier, 2009. "The public promotion of wind energy in Spain from the transaction costs perspective 1986-2007," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(5), pages 1058-1066, June.
- Barbose, Galen & Wiser, Ryan & Phadke, Amol & Goldman, Charles, 2008. "Managing carbon regulatory risk in utility resource planning: Current practices in the Western United States," Energy Policy, Elsevier, vol. 36(9), pages 3300-3311, September.
- Gross, Robert & Blyth, William & Heptonstall, Philip, 2010. "Risks, revenues and investment in electricity generation: Why policy needs to look beyond costs," Energy Economics, Elsevier, vol. 32(4), pages 796-804, July.
If references are entirely missing, you can add them using this form.