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Balancing Generation from Renewable Energy Sources: Profitability of an Energy Trader

Author

Listed:
  • Christopher Kath

    (RWE Supply & Trading GmbH, 45141 Essen, Germany
    House of Energy Markets and Finance, University of Duisburg-Essen, 45141 Essen, Germany)

  • Weronika Nitka

    (Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland
    Faculty of Pure and Applied Mathematics, Wrocław University of Science and Technology, 50-370 Wrocław, Poland)

  • Tomasz Serafin

    (Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland
    Faculty of Pure and Applied Mathematics, Wrocław University of Science and Technology, 50-370 Wrocław, Poland)

  • Tomasz Weron

    (Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland
    Faculty of Pure and Applied Mathematics, Wrocław University of Science and Technology, 50-370 Wrocław, Poland)

  • Przemysław Zaleski

    (Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland
    Department of Finance and Strategic Analysis, EkoPartner Recykling Sp. z o.o., 59-300 Lubin, Poland)

  • Rafał Weron

    (Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland)

Abstract

Motivated by a practical problem faced by an energy trading company in Poland, we investigate the profitability of balancing intermittent generation from renewable energy sources (RES). We consider a company that buys electricity generated by a pool of wind farms and pays their owners the day-ahead system price minus a commission, then sells the actually generated volume in the day-ahead and balancing markets. We evaluate the profitability (measured by the Sharpe ratio) and market risk faced by the energy trader as a function of the commission charged and the adopted trading strategy. We show that publicly available, country-wide RES generation forecasts can be significantly improved using a relatively simple regression model and that trading on this information yields significantly higher profits for the company. Moreover, we address the issue of contract design as a key performance driver. We argue that by offering tolerance range contracts, which transfer some of the risk to wind farm owners, both parties can bilaterally agree on a suitable framework that meets individual risk appetite and profitability expectations.

Suggested Citation

  • Christopher Kath & Weronika Nitka & Tomasz Serafin & Tomasz Weron & Przemysław Zaleski & Rafał Weron, 2020. "Balancing Generation from Renewable Energy Sources: Profitability of an Energy Trader," Energies, MDPI, Open Access Journal, vol. 13(1), pages 1-15, January.
  • Handle: RePEc:gam:jeners:v:13:y:2020:i:1:p:205-:d:304260
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    References listed on IDEAS

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    Cited by:

    1. Adam Sulich & Letycja Sołoducho-Pelc, 2021. "Renewable Energy Producers’ Strategies in the Visegrád Group Countries," Energies, MDPI, Open Access Journal, vol. 14(11), pages 1-21, May.
    2. Grzegorz Zimon & Dominik Zimon, 2020. "The Impact of Purchasing Group on the Profitability of Companies Operating in the Renewable Energy Sector—The Case of Poland," Energies, MDPI, Open Access Journal, vol. 13(24), pages 1-15, December.
    3. Weronika Nitka & Tomasz Serafin & Dimitrios Sotiros, 2021. "Forecasting Electricity Prices: Autoregressive Hybrid Nearest Neighbors (ARHNN) method," WORking papers in Management Science (WORMS) WORMS/21/06, Department of Operations Research and Business Intelligence, Wroclaw University of Science and Technology.
    4. Lu Zhu & Lanli Hu & Serhat Yüksel & Hasan Dinçer & Hüsne Karakuş & Gözde Gülseven Ubay, 2020. "Analysis of Strategic Directions in Sustainable Hydrogen Investment Decisions," Sustainability, MDPI, Open Access Journal, vol. 12(11), pages 1-19, June.
    5. Tomasz Serafin & Grzegorz Marcjasz & Rafal Weron, 2020. "Trading on short-term path forecasts of intraday electricity prices," WORking papers in Management Science (WORMS) WORMS/20/17, Department of Operations Research and Business Intelligence, Wroclaw University of Science and Technology.
    6. Anna Gloria Billé & Angelica Gianfreda & Filippo Del Grosso & Francesco Ravazzolo, 2021. "Forecasting Electricity Prices with Expert, Linear and Non-Linear Models," Working Paper series 21-20, Rimini Centre for Economic Analysis.

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