A Multivariate High-Order Markov Model for the Income Estimation of a Wind Farm

Riccardo De Blasis, Giovanni Batista Masala and Filippo Petroni
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Riccardo De Blasis: Department of Finance, Management and Technology, LUM University, 70010 Casamassima, Italy
Giovanni Batista Masala: Department of Economics and Business Sciences, University of Cagliari, 09124 Cagliari, Italy
Filippo Petroni: Department of Management, Università Politecnica delle Marche, 60121 Ancona, Italy

Energies, 2021, vol. 14, issue 2, 1-16

Abstract: The energy produced by a wind farm in a given location and its associated income depends both on the wind characteristics in that location—i.e., speed and direction—and the dynamics of the electricity spot price. Because of the evidence of cross-correlations between wind speed, direction and price series and their lagged series, we aim to assess the income of a hypothetical wind farm located in central Italy when all interactions are considered. To model these cross and auto-correlations efficiently, we apply a high-order multivariate Markov model which includes dependencies from each time series and from a certain level of past values. Besides this, we used the Raftery Mixture Transition Distribution model (MTD) to reduce the number of parameters to get a more parsimonious model. Using data from the MERRA-2 project and from the electricity market in Italy, we estimate the model parameters and validate them through a Monte Carlo simulation. The results show that the simulated income faithfully reproduces the empirical income and that the multivariate model also closely reproduces the cross-correlations between the variables. Therefore, the model can be used to predict the income generated by a wind farm.

Keywords: wind farm performance; electricity price; multivariate Markov chain; mixture transition distribution (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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