IDEAS home Printed from https://ideas.repec.org/p/cte/wsrepe/38369.html
   My bibliography  Save this paper

Risk management in solar-based power plants with storage: a comparative study

Author

Listed:
  • Oliveira, Fernando S.
  • Ruiz Mora, Carlos

Abstract

Investment in solar generation is essential to achieve EU climate neutrality by 2050. Using stochastic programming, we study the management of solar power plants considering trading in the spot and future markets, weather derivatives based on solar radiation, storage, and risk management. We provide a comparative study of two technologies: a concentrated solar power plant with thermal storage and a photovoltaic power plant with electrical batteries. The significant managerial contributions can be classified into four levels. First, regarding trading and generation decisions, we proved that: a) plants sell energy in the spot market during the night and store energy in the morning; b) storage happens at the same time as electricity is purchased in the spot market; c) in the Summer the plants sell more in the futures market; d) storage, in both types of technology, increases trading in futures and spot markets and creates value for generators. Second, regarding the use of options on solar radiation, we show that a) the value of put and call options depends on the expected solar radiation; b) the radiation option prices are correlated with generation and storage levels and with the anticipated trading in spot and futures markets; c) the optimal strategy is to sell calls and buy put options; d) generators with a storage system sell significantly more call options. Third, regarding risk aversion, we proved that: a) the higher the risk aversion, the more the generator sells in the futures market and the higher the number of purchased put contracts; b) the risk-adjusted profit from options trading is zero. Finally, in comparing both technologies, even though the operation and financial management patterns are similar, the photovoltaic power plant is more profitable, and the batteries create more value.

Suggested Citation

  • Oliveira, Fernando S. & Ruiz Mora, Carlos, 2023. "Risk management in solar-based power plants with storage: a comparative study," DES - Working Papers. Statistics and Econometrics. WS 38369, Universidad Carlos III de Madrid. Departamento de Estadística.
    • Handle: RePEc:cte:wsrepe:38369
    as

    Download full text from publisher

    File URL: https://e-archivo.uc3m.es/bitstream/handle/10016/38369/ws202311.pdf?sequence=1
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Gordon J. Alexander & Alexandre M. Baptista, 2004. "A Comparison of VaR and CVaR Constraints on Portfolio Selection with the Mean-Variance Model," Management Science, INFORMS, vol. 50(9), pages 1261-1273, September.
    2. Yasemin Merzifonluoglu & Eray Uzgoren, 2018. "Photovoltaic power plant design considering multiple uncertainties and risk," Annals of Operations Research, Springer, vol. 262(1), pages 153-184, March.
    3. Ansaripoor, Amir H. & Oliveira, Fernando S., 2018. "Flexible lease contracts in the fleet replacement problem with alternative fuel vehicles: A real-options approach," European Journal of Operational Research, Elsevier, vol. 266(1), pages 316-327.
    4. Heikki Peura & Derek W. Bunn, 2021. "Renewable Power and Electricity Prices: The Impact of Forward Markets," Management Science, INFORMS, vol. 67(8), pages 4772-4788, August.
    5. Domínguez, R. & Carrión, M. & Oggioni, G., 2020. "Planning and operating a renewable-dominated European power system under uncertainty," Applied Energy, Elsevier, vol. 258(C).
    6. A. Gürhan Kök & Kevin Shang & Şafak Yücel, 2020. "Investments in Renewable and Conventional Energy: The Role of Operational Flexibility," Manufacturing & Service Operations Management, INFORMS, vol. 22(5), pages 925-941, September.
    7. Bhattacharya, Saptarshi & Gupta, Aparna & Kar, Koushik & Owusu, Abena, 2020. "Risk management of renewable power producers from co-dependencies in cash flows," European Journal of Operational Research, Elsevier, vol. 283(3), pages 1081-1093.
    8. Chaolin Yang & Zhenyu Hu & Sean X. Zhou, 2021. "Multilocation Newsvendor Problem: Centralization and Inventory Pooling," Management Science, INFORMS, vol. 67(1), pages 185-200, January.
    9. Mark Broadie & Jerome B. Detemple, 2004. "ANNIVERSARY ARTICLE: Option Pricing: Valuation Models and Applications," Management Science, INFORMS, vol. 50(9), pages 1145-1177, September.
    10. Jose A. Guajardo, 2018. "Third-Party Ownership Business Models and the Operational Performance of Solar Energy Systems," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 788-800, October.
    11. Antonio J. Conejo & Miguel Carrión & Juan M. Morales, 2010. "Decision Making Under Uncertainty in Electricity Markets," International Series in Operations Research and Management Science, Springer, number 978-1-4419-7421-1, September.
    12. Karthik Natarajan & Dessislava Pachamanova & Melvyn Sim, 2008. "Incorporating Asymmetric Distributional Information in Robust Value-at-Risk Optimization," Management Science, INFORMS, vol. 54(3), pages 573-585, March.
    13. Oliveira, Fernando S. & Ruiz, Carlos, 2021. "Analysis of futures and spot electricity markets under risk aversion," European Journal of Operational Research, Elsevier, vol. 291(3), pages 1132-1148.
    14. DiOrio, Nicholas & Denholm, Paul & Hobbs, William B., 2020. "A model for evaluating the configuration and dispatch of PV plus battery power plants," Applied Energy, Elsevier, vol. 262(C).
    15. Jeremy Berkowitz & Peter Christoffersen & Denis Pelletier, 2011. "Evaluating Value-at-Risk Models with Desk-Level Data," Management Science, INFORMS, vol. 57(12), pages 2213-2227, December.
    16. Youyi Feng & Mozart B.C. Menezes, 2022. "Integrated production and renewable energy generation in the presence of hydrogen energy storage," Production and Operations Management, Production and Operations Management Society, vol. 31(5), pages 2222-2236, May.
    17. Lai, Chun Sing & Jia, Youwei & Lai, Loi Lei & Xu, Zhao & McCulloch, Malcolm D. & Wong, Kit Po, 2017. "A comprehensive review on large-scale photovoltaic system with applications of electrical energy storage," Renewable and Sustainable Energy Reviews, Elsevier, vol. 78(C), pages 439-451.
    18. Gah-Yi Ban & Noureddine El Karoui & Andrew E. B. Lim, 2018. "Machine Learning and Portfolio Optimization," Management Science, INFORMS, vol. 64(3), pages 1136-1154, March.
    19. David G. Luenberger & Yinyu Ye, 2008. "Linear and Nonlinear Programming," International Series in Operations Research and Management Science, Springer, edition 0, number 978-0-387-74503-9, September.
    20. Shanshan Hu & Gilvan C. Souza & Mark E. Ferguson & Wenbin Wang, 2015. "Capacity Investment in Renewable Energy Technology with Supply Intermittency: Data Granularity Matters!," Manufacturing & Service Operations Management, INFORMS, vol. 17(4), pages 480-494, October.
    21. L. Jeff Hong & Guangwu Liu, 2009. "Simulating Sensitivities of Conditional Value at Risk," Management Science, INFORMS, vol. 55(2), pages 281-293, February.
    22. Giovanni Masala & Marco Micocci & Andrea Rizk, 2022. "Hedging Wind Power Risk Exposure through Weather Derivatives," Energies, MDPI, vol. 15(4), pages 1-30, February.
    23. repec:eme:mfppss:v:33:y:2007:i:4:p:246-252 is not listed on IDEAS
    24. Dowling, Alexander W. & Zheng, Tian & Zavala, Victor M., 2017. "Economic assessment of concentrated solar power technologies: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 1019-1032.
    25. Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
    26. Du, Ershun & Zhang, Ning & Hodge, Bri-Mathias & Kang, Chongqing & Kroposki, Benjamin & Xia, Qing, 2018. "Economic justification of concentrating solar power in high renewable energy penetrated power systems," Applied Energy, Elsevier, vol. 222(C), pages 649-661.
    27. Elias, R.S. & Wahab, M.I.M. & Fang, L., 2014. "A comparison of regime-switching temperature modeling approaches for applications in weather derivatives," European Journal of Operational Research, Elsevier, vol. 232(3), pages 549-560.
    28. Dominguez, R. & Baringo, L. & Conejo, A.J., 2012. "Optimal offering strategy for a concentrating solar power plant," Applied Energy, Elsevier, vol. 98(C), pages 316-325.
    29. Keles, Dogan & Dehler-Holland, Joris, 2022. "Evaluation of photovoltaic storage systems on energy markets under uncertainty using stochastic dynamic programming," Energy Economics, Elsevier, vol. 106(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Borgonovo, Emanuele & Gatti, Stefano, 2013. "Risk analysis with contractual default. Does covenant breach matter?," European Journal of Operational Research, Elsevier, vol. 230(2), pages 431-443.
    2. Huang, Jinbo & Ding, Ashley & Li, Yong & Lu, Dong, 2020. "Increasing the risk management effectiveness from higher accuracy: A novel non-parametric method," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    3. Huang, Xiaoxia & Ying, Haiyao, 2013. "Risk index based models for portfolio adjusting problem with returns subject to experts' evaluations," Economic Modelling, Elsevier, vol. 30(C), pages 61-66.
    4. Frank Fabozzi & Dashan Huang & Guofu Zhou, 2010. "Robust portfolios: contributions from operations research and finance," Annals of Operations Research, Springer, vol. 176(1), pages 191-220, April.
    5. Volodymyr Babich & Ruben Lobel & Şafak Yücel, 2020. "Promoting Solar Panel Investments: Feed-in-Tariff vs. Tax-Rebate Policies," Manufacturing & Service Operations Management, INFORMS, vol. 22(6), pages 1148-1164, November.
    6. L. Jeff Hong & Zhaolin Hu & Liwei Zhang, 2014. "Conditional Value-at-Risk Approximation to Value-at-Risk Constrained Programs: A Remedy via Monte Carlo," INFORMS Journal on Computing, INFORMS, vol. 26(2), pages 385-400, May.
    7. Yuji Yamada & Takuji Matsumoto, 2023. "Construction of Mixed Derivatives Strategy for Wind Power Producers," Energies, MDPI, vol. 16(9), pages 1-26, April.
    8. Alexander, Gordon J. & Baptista, Alexandre M. & Yan, Shu, 2012. "When more is less: Using multiple constraints to reduce tail risk," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2693-2716.
    9. Alexander, Gordon J. & Baptista, Alexandre M. & Yan, Shu, 2014. "Bank regulation and international financial stability: A case against the 2006 Basel framework for controlling tail risk in trading books," Journal of International Money and Finance, Elsevier, vol. 43(C), pages 107-130.
    10. Pengyu Wei & Zuo Quan Xu, 2021. "Dynamic growth-optimum portfolio choice under risk control," Papers 2112.14451, arXiv.org.
    11. Aditya Vedantam & Ananth Iyer, 2021. "Capacity Investment under Bayesian Information Updates at Reporting Periods: Model and Application," Production and Operations Management, Production and Operations Management Society, vol. 30(8), pages 2707-2725, August.
    12. Vasallo, Manuel Jesús & Cojocaru, Emilian Gelu & Gegúndez, Manuel Emilio & Marín, Diego, 2021. "Application of data-based solar field models to optimal generation scheduling in concentrating solar power plants," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 190(C), pages 1130-1149.
    13. Vladimir Rankovic & Mikica Drenovak & Branko Uroševic & Ranko Jelic, 2016. "Mean Univariate-GARCH VaR Portfolio Optimization: Actual Portfolio Approach," CESifo Working Paper Series 5731, CESifo.
    14. Xueting Cui & Xiaoling Sun & Shushang Zhu & Rujun Jiang & Duan Li, 2018. "Portfolio Optimization with Nonparametric Value at Risk: A Block Coordinate Descent Method," INFORMS Journal on Computing, INFORMS, vol. 30(3), pages 454-471, August.
    15. Juan Ma & Foad Mahdavi Pajouh & Balabhaskar Balasundaram & Vladimir Boginski, 2016. "The Minimum Spanning k -Core Problem with Bounded CVaR Under Probabilistic Edge Failures," INFORMS Journal on Computing, INFORMS, vol. 28(2), pages 295-307, May.
    16. Wong, Wing-Keung & Phoon, Kok Fai & Lean, Hooi Hooi, 2008. "Stochastic dominance analysis of Asian hedge funds," Pacific-Basin Finance Journal, Elsevier, vol. 16(3), pages 204-223, June.
    17. Paolo Falbo & Carlos Ruiz, 2021. "Joint optimization of sales-mix and generation plan for a large electricity producer," Papers 2110.02016, arXiv.org.
    18. Jiang, Chun-Fu & Peng, Hong-Yi & Yang, Yu-Kuan, 2016. "Tail variance of portfolio under generalized Laplace distribution," Applied Mathematics and Computation, Elsevier, vol. 282(C), pages 187-203.
    19. Steven Kou & Xianhua Peng, 2016. "On the Measurement of Economic Tail Risk," Operations Research, INFORMS, vol. 64(5), pages 1056-1072, October.
    20. Guo, Qiaozhen & He, Qiao-Chu & Chen, Ying-Ju & Huang, Wei, 2021. "Poverty mitigation via solar panel adoption: Smart contracts and targeted subsidy design," Omega, Elsevier, vol. 102(C).

    More about this item

    Keywords

    Decision Analysis;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cte:wsrepe:38369. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ana Poveda (email available below). General contact details of provider: http://portal.uc3m.es/portal/page/portal/dpto_estadistica .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.