TY - GEN
T1 - Comparing hedging methods for wind power
T2 - 2006 9th International Conference on Probabilistic Methods Applied to Power Systems, PMAPS
AU - Hedman, Kory W.
AU - Sheblé, Gerald B.
PY - 2006
Y1 - 2006
N2 - The main setback for wind energy is the uncertainty and uncontrollability of the energy source. Researchers are trying to create ways to handle this uncertainty by means of energy storage through pumped storage hydro facilities, compressed air facilities, etc. This paper will analyze the option of using a pumped storage hydro plant to negate this uncertainty from a financial viewpoint. In addition, this paper analyzes whether or not such an option is truly best by comparing it to the case where the wind farm can purchase call/put options to protect against the uncertainty of the wind. To determine the proper price of these options, the Black-Scholes options pricing model is used to ensure there is no ability to arbitrage, i.e. there is no free lunch. This second option will also consider the pumped storage plant's financial gain when working independent as well in order to make a fair comparison. The objective of this paper is to analyze the effectiveness of these hedging methods and the financial implications.
AB - The main setback for wind energy is the uncertainty and uncontrollability of the energy source. Researchers are trying to create ways to handle this uncertainty by means of energy storage through pumped storage hydro facilities, compressed air facilities, etc. This paper will analyze the option of using a pumped storage hydro plant to negate this uncertainty from a financial viewpoint. In addition, this paper analyzes whether or not such an option is truly best by comparing it to the case where the wind farm can purchase call/put options to protect against the uncertainty of the wind. To determine the proper price of these options, the Black-Scholes options pricing model is used to ensure there is no ability to arbitrage, i.e. there is no free lunch. This second option will also consider the pumped storage plant's financial gain when working independent as well in order to make a fair comparison. The objective of this paper is to analyze the effectiveness of these hedging methods and the financial implications.
KW - Black-scholes options pricing model
KW - Call & put options
KW - Energy storage
KW - Hedging
KW - Monte-Carlo simulations
KW - Power systems economics
KW - Pumped-storage hydro
KW - Real options analysis
KW - Renewable energy sources
KW - Risk analysis
KW - Stochastic processes
KW - Wind energy
UR - http://www.scopus.com/inward/record.url?scp=46149115410&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=46149115410&partnerID=8YFLogxK
U2 - 10.1109/PMAPS.2006.360202
DO - 10.1109/PMAPS.2006.360202
M3 - Conference contribution
AN - SCOPUS:46149115410
SN - 9171783520
SN - 9789171783523
T3 - 2006 9th International Conference on Probabilistic Methods Applied to Power Systems, PMAPS
BT - 2006 9th International Conference on Probabilistic Methods Applied to Power Systems, PMAPS
Y2 - 11 June 2006 through 15 June 2006
ER -