Risk-Optimized Pooling of Intermittent Renewable Energy Sources

41 Pages Posted: 27 May 2016 Last revised: 13 May 2017

See all articles by Gerke Gersema

Gerke Gersema

Technische Universität München (TUM) - Center for Energy Markets (CEM)

David Wozabal

Technische Universität München (TUM) - TUM School of Management

Date Written: April 4, 2017

Abstract

Many photovoltaic and wind generation capacity owners gain access to power markets by signing up with virtual power plants. Power generation from these renewable sources of electricity is inherently uncertain and, consequently, revenue is random, which induces a risk for the owner. In this study, we investigate to what extent pooling different technologies and locations in the portfolio of a virtual power plant can reduce aggregate risk. To this end, we develop stochastic models for factors driving the assets' underlying market and volume risks on which we base a model for risk-optimized pooling. Using the German market as an example, we demonstrate that optimal portfolios have a clearly better risk/return profile than the market portfolio. This finding holds in the case without subsidies as well as the case with feed-in tariffs.

Keywords: Market integration of renewables, Power markets, Intermittency, Variable renewables, Wind and solar power, Virtual power plant

JEL Classification: Q21, Q42, Q47

Suggested Citation

Gersema, Gerke and Wozabal, David, Risk-Optimized Pooling of Intermittent Renewable Energy Sources (April 4, 2017). Journal of Banking and Finance, Forthcoming, DOI: 10.1016/j.jbankfin.2017.03.016, Available at SSRN: https://ssrn.com/abstract=2784736 or http://dx.doi.org/10.2139/ssrn.2784736

Gerke Gersema (Contact Author)

Technische Universität München (TUM) - Center for Energy Markets (CEM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

HOME PAGE: http://https://www.cem.wi.tum.de

David Wozabal

Technische Universität München (TUM) - TUM School of Management ( email )

München
Germany

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