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Optimal Wind Power Deployment in Europe - a Portfolio Approach

Fabien Roques (), Céline Hiroux and Marcelo Saguan

No 2009/17, RSCAS Working Papers from European University Institute

Abstract: Geographic diversification of wind farms can smooth out the fluctuations in wind power generation and reduce the associated system balancing and reliability costs. The paper uses historical wind production data from five European countries (Austria, Denmark, France, Germany, and Spain) and applies Mean-Variance Portfolio theory to identify cross-country portfolios that minimize the total variance of wind production for a given level of production. Theoretical unconstrained portfolios show that countries (Spain and Denmark) with the best wind resource or whose size contributes to smoothing out the country output variability dominate optimal portfolios. The methodology is then elaborated to derive optimal constrained portfolios taking into account national wind resource potential and transmission constraints and compare them with the projected portfolios for 2020. Such constraints limit the theoretical potential efficiency gains from geographical diversification, but there is still considerable room to improve performance from actual or projected portfolios. These results highlight the need for more cross-border interconnection capacity, for greater coordination of European renewable support policies, and for renewable support mechanisms and electricity market designs providing locational incentives. Under these conditions, a mechanism for renewables credits trading could help aligning wind power portfolios with the theoretically efficient geographic dispersion.

Keywords: wind power variability; geographic diversification; optimal portfolios; mean variance portfolio theory (search for similar items in EconPapers)
Date: 2009-02-25
New Economics Papers: this item is included in nep-eec and nep-ene
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http://hdl.handle.net/1814/11030 Full text (application/pdf)

Related works:
Journal Article: Optimal wind power deployment in Europe--A portfolio approach (2010) Downloads
Working Paper: Optimal wind power deployment in Europe-A portfolio approach (2010)
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