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

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  • Kang Hua Cao
  • Han Qi
  • Chi-Keung Woo
  • Jay Zarnikau
  • Raymond Li

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 (

Suggested Citation

  • Kang Hua Cao & Han Qi & Chi-Keung Woo & Jay Zarnikau & Raymond Li, 2024. "Efficient Frontiers for Short-term Sales of Spot and Forward Wind Energy in Texas," The Energy Journal, , vol. 45(6), pages 37-60, November.
    • Handle: RePEc:sae:enejou:v:45:y:2024:i:6:p:37-60
    DOI: 10.1177/01956574241287500
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