The Effect of Weather Uncertainty on the Financial Risk of Green Electricity Producers under Various Renewable Policies
AbstractIn recent years, many countries have implemented policies to incentivize renewable power generation. In this paper, we analyze the variance in profits of renewable-based electricity producers due to weather uncertainty under a `feed-in tari ff' policy, a `fixed bonus' incentive and a `renewable quota' obligation. In a first step, we discuss the price eff ects of fluctuations in the feed-in from renewables and their impact on the risk for green electricity producers. In a second step, we numerically solve the problem by applying a spatial stochastic equilibrium model to the European electricity market. The simulation results allow us to discuss the variance in profits under the di fferent renewable support mechanisms and how di fferent technologies are a ffected by weather uncertainty. The analysis suggests that wind producers benefit from market integration, whereas producers from biomass and solar plants face a larger variance in profits. Furthermore, the simulation indicates that highly volatile green certificate prices occur when introducing a renewable quota obligation without the option of banking and borrowing. Thus, all renewable producers face a higher variance in profits, as the price eff ect of weather uncertainty on green certificates overcompensates the negatively correlated fluctuations in production and prices.
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Bibliographic InfoPaper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln in its series EWI Working Papers with number 2013-15.
Length: 35 pages
Date of creation: 24 Jun 2013
Date of revision:
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RES-E policy; financial risk; mixed complementarity problem;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
- NEP-ENE-2013-07-28 (Energy Economics)
- NEP-ENV-2013-07-28 (Environmental Economics)
- NEP-EUR-2013-07-28 (Microeconomic European Issues)
- NEP-REG-2013-07-28 (Regulation)
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