Comparing the risk profiles of renewable and natural gas-fired electricity contracts

Ryan Wiser, Devra Bachrach, Mark Bolinger and William Golove

Renewable and Sustainable Energy Reviews, 2004, vol. 8, issue 4, 335-363

Abstract: Electricity policymakers, industry participants, analysts, and even consumers have become acutely aware of the ever-present risks that face the delivery of electricity. Recent instability in the electricity industry illustrates the need for thoughtful resource planning to balance the cost, reliability, and risk of electricity supply. This article evaluates the relative risk profiles of renewable and natural gas generating plants. It does so by analyzing how six different risks are allocated and, if possible, mitigated in long-term power purchase contracts, taking as a contract sample 27 agreements signed by the California Department of Water Resources in 2001. This assessment illustrates some of the significant differences between the risk profiles of natural gas-fired and renewable generation. Renewable energy contracts are shown to provide the most value relative to natural gas-fired contracts by mitigating fuel price and environmental compliance risks. Gas-fired electricity contracts typically provide better protection against short-term demand risk. When it comes to fuel supply, performance, and regulatory risks, the relative value of renewable and gas-fired contracts is ambiguous. We conclude that a better understanding of risks and risk allocation practices will help utilities, regulators, and others make more objective decisions in the future when selecting between renewable and gas-fired electricity supply.

Keywords: Risk; Uncertainty; Renewable; energy; Natural; gas; Electricity; contracts (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1364-0321(03)00136-9
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:rensus:v:8:y:2004:i:4:p:335-363

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/600126/bibliographic
http://www.elsevier. ... 600126/bibliographic

Access Statistics for this article

Renewable and Sustainable Energy Reviews is currently edited by L. Kazmerski

More articles in Renewable and Sustainable Energy Reviews from Elsevier
Bibliographic data for series maintained by Catherine Liu ().