Risk-Optimized Pooling of Intermittent Renewable Energy Sources
41 Pages Posted: 27 May 2016 Last revised: 13 May 2017
Date Written: April 4, 2017
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: Suggested Citation