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

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...

Full description

Saved in:

Bibliographic Details
Published in:	Energies (Basel) 2020-01, Vol.13 (1), p.205
Main Authors:	Kath, Christopher, Nitka, Weronika, Serafin, Tomasz, Weron, Tomasz, Zaleski, Przemysław, Weron, Rafał
Format:	Article
Language:	eng
Subjects:	Alternative energy sources Appetite Balancing balancing market Business models Clearing banks contract design Corporate profits day-ahead market Economics Electricity electricity price Energy Energy industry Energy resources Energy sources Portfolio management Prices Profitability Profits Regression models Renewable energy Renewable energy sources res generation Risk sharpe ratio trading strategy value-at-risk Wind Wind power wind power forecast Wind power generation
Online Access:	Get full text
Tags:	Add Tag No Tags, Be the first to tag this record!

Description
Summary:	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.
ISSN:	1996-1073 1996-1073