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Optimal wind power deployment in Europe--A portfolio approach

Listed author(s):
  • Roques, Fabien
  • Hiroux, Céline
  • Saguan, Marcelo

Geographic diversification of wind farms can smooth out the fluctuations in wind power generation and reduce the associated system balancing and reliability costs. The paper uses historical wind production data from five European countries (Austria, Denmark, France, Germany, and Spain) and applies the Mean-Variance Portfolio theory to identify cross-country portfolios that minimise the total variance of wind production for a given level of production. Theoretical unconstrained portfolios show that countries (Spain and Denmark) with the best wind resource or whose size contributes to smoothing out the country output variability dominate optimal portfolios. The methodology is then elaborated to derive optimal constrained portfolios taking into account national wind resource potential and transmission constraints and compare them with the projected portfolios for 2020. Such constraints limit the theoretical potential efficiency gains from geographical diversification, but there is still considerable room to improve performance from actual or projected portfolios. These results highlight the need for more cross-border interconnection capacity, for greater coordination of European renewable support policies, and for renewable support mechanisms and electricity market designs providing locational incentives. Under these conditions, a mechanism for renewables credits trading could help aligning wind power portfolios with the theoretically efficient geographic dispersion.

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File URL: http://www.sciencedirect.com/science/article/pii/S0301-4215(09)00545-X
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Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 38 (2010)
Issue (Month): 7 (July)
Pages: 3245-3256

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Handle: RePEc:eee:enepol:v:38:y:2010:i:7:p:3245-3256
Contact details of provider: Web page: http://www.elsevier.com/locate/enpol

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  1. Awerbuch, Shimon, 2000. "Investing in photovoltaics: risk, accounting and the value of new technology," Energy Policy, Elsevier, vol. 28(14), pages 1023-1035, November.
  2. Bar-Lev, Dan & Katz, Steven, 1976. "A Portfolio Approach to Fossil Fuel Procurement in the Electric Utility Industry," Journal of Finance, American Finance Association, vol. 31(3), pages 933-947, June.
  3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  4. Faúndez, Pablo, 2008. "Renewable energy in a market-based economy: How to estimate its potential and choose the right incentives," Renewable Energy, Elsevier, vol. 33(8), pages 1768-1774.
  5. Sinden, Graham, 2007. "Characteristics of the UK wind resource: Long-term patterns and relationship to electricity demand," Energy Policy, Elsevier, vol. 35(1), pages 112-127, January.
  6. Neuhoff, Karsten & Ehrenmann, Andreas & Butler, Lucy & Cust, Jim & Hoexter, Harriet & Keats, Kim & Kreczko, Adam & Sinden, Graham, 2008. "Space and time: Wind in an investment planning model," Energy Economics, Elsevier, vol. 30(4), pages 1990-2008, July.
  7. H. Brett Humphreys & Katherine T. McClain, 1998. "Reducing the Impacts of Energy Price Volatility Through Dynamic Portfolio Selection," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 107-131.
  8. Fouquet, Doerte & Johansson, Thomas B., 2008. "European renewable energy policy at crossroads--Focus on electricity support mechanisms," Energy Policy, Elsevier, vol. 36(11), pages 4079-4092, November.
  9. Agnolucci, Paolo, 2007. "Wind electricity in Denmark: A survey of policies, their effectiveness and factors motivating their introduction," Renewable and Sustainable Energy Reviews, Elsevier, vol. 11(5), pages 951-963, June.
  10. 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.
  11. Resch, Gustav & Held, Anne & Faber, Thomas & Panzer, Christian & Toro, Felipe & Haas, Reinhard, 2008. "Potentials and prospects for renewable energies at global scale," Energy Policy, Elsevier, vol. 36(11), pages 4048-4056, November.
  12. Drake, Ben & Hubacek, Klaus, 2007. "What to expect from a greater geographic dispersion of wind farms?--A risk portfolio approach," Energy Policy, Elsevier, vol. 35(8), pages 3999-4008, August.
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