Wind Power Intermittency and Profitability: The Role of Strategic Bidding

Ali Shantia (), Owen Q. Wu and Roman Kapuscinski
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Ali Shantia: HEC Paris
Owen Q. Wu: Indiana University - Kelley School of Business
Roman Kapuscinski: University of Michigan, Stephen M. Ross School of Business

No 1549, HEC Research Papers Series from HEC Paris

Abstract: Problem definition. Understanding the impact of wind intermittency on wind farms' profitability is essential to their financial viability. We examine how wind intermittency affects the profitability of wind farms and how this effect is influenced by their bidding strategy. Methodology/results. Employing the Gaussian copula approach on detailed bidding data from wind farms in the Midcontinent Independent System Operator (MISO) region, we find that wind intermittency on average increases revenue when average wind is low, but this effect reduces as average wind rises. We further demonstrate how wind farms bidding strategies, characterized by the Slope and Convexity of their bidding curves, influence the impact of intermittency on profitability. Specifically, the results show that a higher Slope magnifies the positive effect of intermittency in low-wind conditions but reduces profitability when wind levels are high. Conversely, increasing Convexity reduces the impact of intermittency in low-wind conditions but heightens it when wind levels are high. Managerial implications. By aligning their bidding strategies with the prevailing wind patterns, wind farm operators can enhance revenues derived from intermittent wind resources. Managers might exploit negative wind shocks more effectively by increasing the Slope under low-wind conditions or leverage Convexity when wind is abundant. These insights offer actionable guidance on tailoring bidding strategies to optimize profitability across diverse wind regimes.

Keywords: Electricity market; wind intermittency; strategic bidding; Gaussian copula Shantia (search for similar items in EconPapers)
JEL-codes: Q21 Q41 Q42 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2025-02-24
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1549

DOI: 10.2139/ssrn.5129021

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