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Energy Seminar: A Portfolio Approach to Managing Reliability Risks in Renewable Energy Investments

Frank Wolak, Director, Program on Energy and Sustainable Development, Professor, Economics, Stanford University
Talk Abstract:
Wind and solar generation units produce where and when the underlying resource is available. For given the technology, how much output is produced in an hour at one location is likely to be highly correlated with how much is produced at another location. By locating renewable generation capacity taking into account this correlation, a far less volatile aggregate output stream can be obtained. This talk uses hourly location-level wind and solar generation output and real-time price data from the California ISO control area for a one-year time period is used to compute the vector of means the contemporaneous covariance hourly output and revenues across all wind and solar locations to examine the extent to which potential exists. This information is used to estimate an economic model that is used to compute the annual hourly output and annual hourly revenues mean/standard deviation efficient frontiers for wind and solar resource locations in the California ISO control area. For both mean/standard deviation efficient frontiers, economically meaningful differences between portfolios on the efficient frontier and the actual wind and solar capacity mix are found. Most of the hourly output and hourly revenue risk-reducing benefits from optimal choice of locational capacities is captured by a mix of wind resources, with the addition of solar resources only slightly increasing the set of feasible portfolio mean and standard deviation combinations. The risk-adjusted maximum expected hourly output portfolio and the risk-adjusted maximum expected hourly revenue portfolio are computed and in both cases, the weights for these portfolios are found to concentrate capacity on a small number of existing wind and solar locations. Recommendations for the design of renewable energy support mechanisms and interconnection policies to provide incentives to realize these reliability benefits will be discussed.



Monday, April 11, 2016. 04:30 PM


NVIDIA Auditorium, Jen-Hsun Huang Engineering Center


Precourt Institute for Energy


Free and open to all