Work

Efficient Frontiers for Short-term Sales of Spot and Forward Wind Energy in Texas

Year: 2024

Type: article

Abstract: Texas’s windfarm construction continues unabated, despite wind energy’s cannibalization effect on wind generation’s investment incentive and the rising popularity of short-term wind power purchase agreements (PPAs). Using ERCOT’s monthly data for Jan-2011 to Dec-2021, we develop spot energy price forecasts by time of day (TOD) and their standard deviations to derive the efficient frontiers (EFs) for spot and forward energy sales of a risk-averse windfarm developer under a short-term wind PPA of not more than ten years. These EFs reveal a windfarm’s operating revenue forecast tends to increase with the PPA’s forward energy prices. Further, the windfarm’s revenue risk and forecast move in tandem, akin to the risk-return relationship rooted in Markowitz’s portfolio theory. Hence, the developer tends to sell one hundred percent (<100%) of the windfarm’s energy output at forward energy prices that are above (below) spot energy price forecasts by TOD for recovering wind generation’s levelized cost of energy. JEL Classification: Q41, Q42, Q47, Q48

Source: The Energy Journal

DOI: 10.1177/01956574241287500

Authors: Kang Hua Cao, Han Qi, Chi-Keung Woo, Jay Zarnikau, Raymond Li

Institutions: Hong Kong Baptist University, Shenzhen University, Shenzhen Audencia Financial Technology Institute, The University of Texas at Austin, University of Canberra

Language: English

Topic: Electric Power System Optimization

Subfield: Electrical and Electronic Engineering

Field: Engineering

Domain: Physical Sciences

SDGs: Affordable and clean energy, Climate action

Open Access status: green

Funder: Ford Foundation