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Optimal Contracts for Renewable Electricity

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Download WP19_20.pdf881.04 KB
Author(s)
Parlane, Sarah 
Ryan, L. (Lisa B.) 
Uri
http://hdl.handle.net/10197/11087
Date Issued
September 2019
Date Available
26T11:26:32Z September 2019
Abstract
Companies are increasingly choosing to procure their power from renewable energy sources, with their own set of potential challenges. In this paper we focus on contracts to procure electricity from renewable sources that are inherently unreliable (such as wind and solar). We determine the contracts that minimize the cost of procuring a given amount of renewable energy from two risk-averse generators. We contrast outcomes arising when investments are set in centralised and decentralised settings, with the absence of reliability addressed by either issuing orders in excess of what is needed or by investing in improved reliability. Our results suggest that future contracts may be geared towards a greater reliance on order inflation and lower investments in reliability as the cost of renewable energy keeps falling. The implications of these results for grid congestion and electricity spot market prices should be of interest to regulators and transmission system operators.
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Start Page
1
End Page
36
Series
UCD Centre for Economic Research Working Paper Series
WP2019/20
Copyright (Published Version)
2019 the Authors
Keywords
  • Renewable electricity...

  • Power purchase agreem...

  • Newsvendor model

  • Risk aversion

  • Order inflation

  • Moral hazard

Classification
D81
D86
L14
L24
L94
Q21
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
https://creativecommons.org/licenses/by-nc-nd/3.0/ie/
Owning collection
Economics Working Papers & Policy Papers
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858
Acquisition Date
Jan 27, 2023
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Last Week
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Acquisition Date
Jan 27, 2023
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