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Level versus Variability Trade-Offs in Wind and Solar Generation Investments: The Case of California

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  • Frank Wolak

Abstract

Hourly plant-level wind and solar generation output and real-time price data for one year from the California ISO control area is used to estimate the vector of means and the contemporaneous covariance matrix of hourly output and revenues across all wind and solar locations in the state. Annual hourly output and annual hourly revenues mean/standard deviation efficient frontiers for wind and solar resource locations are computed from this information. For both efficient frontiers, economically meaningful differences between portfolios on the efficient frontier and the actual wind and solar generation capacity mix are found. Most of the hourly output and hourly revenue risk-reducing benefits from the optimal choice of locational generation capacities is captured by a small number of wind resource locations, with the addition of a small number of solar resource locations only slightly increasing the set of feasible portfolio mean and standard deviation combinations. Measures of non-diversifiable wind and solar energy and revenue risk are computed using the actual market portfolio and the risk-adjusted expected hourly output or hourly revenue maximizing portfolios. [Working Paper 22494]

Suggested Citation

  • Frank Wolak, 2016. "Level versus Variability Trade-Offs in Wind and Solar Generation Investments: The Case of California," Working Papers id:11201, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:11201
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    Cited by:

    1. Henao, Felipe & Viteri, Juan P. & Rodríguez, Yeny & Gómez, Juan & Dyner, Isaac, 2020. "Annual and interannual complementarities of renewable energy sources in Colombia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 134(C).
    2. Klie, Leo & Madlener, Reinhard, 2024. "Concentration versus diversification: A spatial deployment approach to improve the economics of wind power," Energy Policy, Elsevier, vol. 185(C).
    3. Ignacio Mauleón, 2020. "Economic Issues in Deep Low-Carbon Energy Systems," Energies, MDPI, vol. 13(16), pages 1-32, August.
    4. Tangerås, Thomas & Wolak, Frank A., 2019. "Locational Marginal Network Tariffs for Intermittent Renewable Generation," Working Paper Series 1310, Research Institute of Industrial Economics.
    5. Frank A. Wolak, 2021. "Long-Term Resource Adequacy in Wholesale Electricity Markets with Significant Intermittent Renewables," NBER Chapters, in: Environmental and Energy Policy and the Economy, volume 3, pages 155-220, National Bureau of Economic Research, Inc.

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