Working Paper: NBER ID: w22494
Authors: Frank A. 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. The relative difference is significantly larger for aggregate hourly output relative to aggregate hourly revenues, consistent with expected profit-maximizing unilateral entry decisions by renewable resource owners. 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.
Keywords: wind generation; solar generation; California; energy output; revenue; investment optimization
JEL Codes: Q2; Q4; Q5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Optimizing locational capacity shares (R53) | Annual average hourly output (E23) |
| Optimizing locational capacity shares (R53) | Annual average hourly revenue (L97) |
| Annual average hourly output (E23) | Annual standard deviation of hourly output (C29) |
| Location-specific factors (R53) | Effectiveness of wind and solar investments (Q42) |