Valuation of wind energy projects: A real options approach

27 p.

Valuation of Wind Energy Projects: A Real Options Approach

We address the valuation of an operating wind farm and the finite-lived option to invest in it under different reward/support schemes: a constant feed-in tariff, a premium on top of the electricity market price (either a fixed premium or a variable subsidy such as a renewable obligation certificate or ROC), and a transitory subsidy, among others. Futures contracts on electricity with ever longer maturities enable market-based valuations to be undertaken. The model considers up to three sources of uncertainty: the electricity price, the level of wind generation, and the certificate (ROC) price where appropriate. When analytical solutions are lacking, we resort to a trinomial lattice combined with Monte Carlo simulation; we also use a two-dimensional binomial lattice when uncertainty in the ROC price is considered. Our data set refers to the UK. The numerical results show the impact of several factors involved in the decision to invest: the subsidy per MWh generated, the initial lump-sum subsidy, the maturity of the investment option, and electricity price volatility. Different combinations of variables can help bring forward investments in wind generation. One-off policies, e.g., a transitory initial subsidy, seem to have a stronger effect than a fixed premium per MWh produced.

Simplified Formulae for the Estimation of Offshore Wind Turbines Clutter on Marine Radars

The potential impact that offshore wind farms may cause on nearby marine radars should be considered before the wind farm is installed. Strong radar echoes from the turbines may degrade radars' detection capability in the area around the wind farm. Although conventional computational methods provide accurate results of scattering by wind turbines, they are not directly implementable in software tools that can be used to conduct the impact studies. This paper proposes a simple model to assess the clutter that wind turbines may generate on marine radars. This method can be easily implemented in the system modeling software tools for the impact analysis of a wind farm in a real scenario.

Cost of wind energy: comparing distant wind resources to local resources in the midwestern United States.

The best wind sites in the United States are often located far from electricity demand centers and lack transmission access. Local sites that have lower quality wind resources but do not require as much power transmission capacity are an alternative to distant wind resources. In this paper, we explore the trade-offs between developing new wind generation at local sites and installing wind farms at remote sites. We first examine the general relationship between the high capital costs required for local wind development and the relatively lower capital costs required to install a wind farm capable of generating the same electrical output at a remote site,with the results representing the maximum amount an investor should be willing to pay for transmission access. We suggest that this analysis can be used as a first step in comparing potential wind resources to meet a state renewable portfolio standard (RPS). To illustrate, we compare the cost of local wind (∼50 km from the load) to the cost of distant wind requiring new transmission (∼550-750 km from the load) to meet the Illinois RPS. We find that local, lower capacity factor wind sites are the lowest cost option for meeting the Illinois RPS if new long distance transmission is required to access distant, higher capacity factor wind resources. If higher capacity wind sites can be connected to the existing grid at minimal cost, in many cases they will have lower costs.

High Level Environmental Screening Study for Offshore Wind Farm Developments – Marine Habitats and Species Project

High level environmental screening study for offshore wind farm developments – marine habitats and species This report provides an awareness of the environmental issues related to marine habitats and species for developers and regulators of offshore wind farms. The information is also relevant to other offshore renewable energy developments. The marine habitats and species considered are those associated with the seabed, seabirds, and sea mammals. The report concludes that the following key ecological issues should be considered in the environmental assessment of offshore wind farms developments: • likely changes in benthic communities within the affected area and resultant indirect impacts on fish, populations and their predators such as seabirds and sea mammals; • potential changes to the hydrography and wave climate over a wide area, and potential changes to coastal processes and the ecology of the region; • likely effects on spawning or nursery areas of commercially important fish and shellfish species; • likely effects on mating and social behaviour in sea mammals, including migration routes; • likely effects on feeding water birds, seal pupping sites and damage of sensitive or important intertidal sites where cables come onshore; • potential displacement of fish, seabird and sea mammals from preferred habitats; • potential effects on species and habitats of marine natural heritage importance; • potential cumulative effects on seabirds, due to displacement of flight paths, and any mortality from bird strike, especially in sensitive rare or scarce species; • possible effects of electromagnetic fields on feeding behaviour and migration, especially in sharks and rays, and • potential marine conservation and biodiversity benefits of offshore wind farm developments as artificial reefs and 'no-take' zones. The report provides an especially detailed assessment of likely sensitivity of seabed species and habitats in the proposed development areas. Although sensitive to some of the factors created by wind farm developments, they mainly have a high recovery potential. The way in which survey data can be linked to Marine Life Information Network (MarLIN) sensitivity assessments to produce maps of sensitivity to factors is demonstrated. Assessing change to marine habitats and species as a result of wind farm developments has to take account of the natural variability of marine habitats, which might be high especially in shallow sediment biotopes. There are several reasons for such changes but physical disturbance of habitats and short-term climatic variability are likely to be especially important. Wind farm structures themselves will attract marine species including those that are attached to the towers and scour protection, fish that associate with offshore structures, and sea birds (especially sea duck) that may find food and shelter there. Nature conservation designations especially relevant to areas where wind farm might be developed are described and the larger areas are mapped. There are few designated sites that extend offshore to where wind farms are likely to be developed. However, cable routes and landfalls may especially impinge on designated sites. The criteria that have been developed to assess the likely marine natural heritage importance of a location or of the habitats and species that occur there can be applied to survey information to assess whether or not there is anything of particular marine natural heritage importance in a development area. A decision tree is presented that can be used to apply ‘duty of care’ principles to any proposed development. The potential ‘gains’ for the local environment are explored. Wind farms will enhance the biodiversity of areas, could act as refugia for fish, and could be developed in a way that encourages enhancement of fish stocks including shellfish.

Many ways to say 'no', different ways to say 'yes': Applying Q-Methodology to understand public acceptance of wind farm proposals

This paper explores the nature of public acceptance of wind farms by investigating the discourses of support and objection to a proposed offshore scheme. It reviews research into opposition to wind farms, noting previous criticisms that this has tended to provide descriptive rather than explanatory insights and as a result, has not effectively informed the policy debate. One explanation is that much of this research has been conceived within an unreflective positivist research frame, which is inadequate in dealing with the subjectivity and value-basis of public acceptance of wind farm development. The paper then takes a case study of an offshore wind farm proposal in Northern Ireland and applies Q-Methodology to identify the dominant discourse of support and objection. It is argued that this provides new insights into the nature of wind farm conflicts, points to a number or recommendations for policy functions of an example of how this methodology can act as a potential bridge between positivist and post-positivist approaches to policy analysis.

Validation of fixed speed induction generator models for inertial response using wind farm measurements

This paper outlines the use of phasor measurement unit (PMU) records to validate models of fixed speed induction generator (FSIG)-based wind farms during frequency transients. Wind turbine manufacturers usually create their own proprietary models which they can supply to power system utilities for stability studies, subject to confidentiality agreements. However, it is desirable to confirm the accuracy of supplied models with measurements from the particular installation, in order to assess their validity under real field conditions. This is prudent due to possible changes in control algorithms and design retrofits, not accurately reflected or omitted in the supplied model. One important aspect of such models, especially for smaller power systems with limited inertia, is their accuracy during system frequency transients. This paper, therefore, assesses the accuracy of FSIG models with regard to frequency stability, and hence validates a subset of the model dynamics. Such models can then be used with confidence to assess wider system stability implications. The measured and simulated response of a wind farm using doubly fed induction generator (DFIG) technology is also assessed.

Methods in wind power prediction & forecasting

Globally on-shore wind power has seen considerable growth in all grid systems. In the coming decade off-shore wind power is also expected to expand rapidly. Wind power is variable and intermittent over various time scales because it is weather dependent. Therefore wind power integration into traditional grids needs additional power system and electricity market planning and management for system balancing. This extra system balancing means that there is additional system costs associated with wind power assimilation. Wind power forecasting and prediction methods are used by system operators to plan unit commitment, scheduling and dispatch and by electricity traders and wind farm owners to maximize profit. Accurate wind power forecasting and prediction has numerous challenges. This paper presents a study of the existing and possible future methods used in wind power forecasting and prediction for both on-shore and off-shore wind farms.

Tripping Control for Transient Stability in Coordinated Hydro and Wind Generation

Over-frequency generator tripping (OFGT) is used to cut off extra generation to balance power and loads in an isolated system. In this paper the impact of OGFT as a consequence of grid-connected wind farms and under-frequency load shedding (UFLS) is analysed. The paper uses a power system model to demonstrate that wind power fluctuations can readily render OFGT and UFLS maloperation. Using combined hydro and wind generation, the paper proposes a coordinated strategy which resolves problems associated with OFGT and UFLS and preserves system stability.

Large-Scale Wind Generator Cascaded Tripping

Large scale wind farms are subject to tripping, as a consequence of turbine failure, over-sensitive protection, turbines not equipped with low-voltage ride through (LVRT), and reactive power compensation device defects which can lead to voltage rises. This paper considers pertinent issues which render tripping based on a study of LVRT and wind farm protection, with methods to avoid large scale wind generator tripping proposed. The results of LVRT field tests in Jiuquan, China in December 2012 show that the proposed approaches are effective. The paper also presents work which proposes an early warning system to forecast the risk of wind power tripping.

Analysis of Fixed-Speed Wind Farm Low-Frequency Power Pulsations using a Wavelet-Prony Method

The increasing penetration of wind generation on the Island of Ireland has been accompanied by close investigation of low-frequency periodic pulsations contained within the active power flow from different wind farms. A primary concern is excitation of existing low-frequency oscillation modes already present on the system, particularly the 0.75 Hz mode as a consequence of the interconnected Northern and Southern power system networks. Recently grid code requirements on the Northern Ireland power system have been updated stipulating that wind farms connected after 2005 must be able to control the magnitude of oscillations in the range of 0.25 - 1.75 Hz to within 1% of the wind farm's registered output. In order to determine whether wind farm low-frequency oscillations have a negative effect (excite other modes) or possibly a positive impact (damping of existing modes) on the power system, the oscillations at the point of connection must be measured and characterised. Using time - frequency methods, research presented in this paper has been conducted to extract signal features from measured low-frequency active power pulsations produced by wind farms to determine the effective composition of possible oscillatory modes which may have a detrimental effect on system dynamic stability. The paper proposes a combined wavelet-Prony method to extract modal components and determine damping factors. The method is exemplified using real data obtained from wind farm measurements.

The Impact of Wind Farm Power Oscillations on the Irish Power System

The impact of power fluctuations arising from fixed-speed wind turbines on the magnitude and frequency of inter-area oscillations has been investigated. The authors introduced data acquisition equipment to record the power flow on the interconnector between the Northern Ireland and Republic of Ireland systems. Through monitoring the interconnector oscillation using a fast Fourier transform, it was possible to determine the magnitude and frequency of the inter-area oscillation between the two systems. The impact of tower shadow on the output power from a wind farm was analysed using data recorded on site. A case study investigates the effect on the system of the removal of a large fixed-speed wind farm. Conclusions are drawn on the impact that conventional generation and the output from fixed-speed wind farms have on the stability of the Irish power system.

Flexible fault ride through strategy for wind farm clusters in power systems with high wind power penetration

This paper investigates a flexible fault ride through strategy for power systems in China with high wind power penetration. The strategy comprises of adaptive fault ride through requirements and maximum power restrictions of the wind farms with weak fault ride through capabilities. The slight faults and moderate faults with high probability are the main defending objective of the strategy. The adaptive fault ride through requirement in the strategy consists of two sub fault ride through requirements, a temporary slight voltage ride through requirement corresponding to a slight fault incident, with a moderate voltage ride through requirement corresponding to a moderate fault. The temporary overloading capability of the wind farm is reflected in both requirements to enhance the capability to defend slight faults and to avoid tripping when the crowbar is disconnected after moderate faults are cleared. For those wind farms that cannot meet the adaptive fault ride through requirement, restrictions are put on the maximum power output. Simulation results show that the flexible fault ride through strategy increases the fault ride through capability of the wind farm clusters and reduces the wind power curtailment during faults.

Hybrid probabilistic wind power forecasting using temporally local Gaussian process

The demand for sustainable development has resulted in a rapid growth in wind power worldwide. Despite various approaches have been proposed to improve the accuracy and to overcome the uncertainties associated with traditional methods, the stochastic and variable nature of wind still remains the most challenging issue in accurately forecasting wind power. This paper presents a hybrid deterministic-probabilistic method where a temporally local ‘moving window’ technique is used in Gaussian Process to examine estimated forecasting errors. This temporally local Gaussian Process employs less measurement data while faster and better predicts wind power at two wind farms, one in the USA and the other in Ireland. Statistical analysis on the results shows that the method can substantially reduce the forecasting error while more likely generate Gaussian-distributed residuals, particularly for short-term forecast horizons due to its capability to handle the time-varying characteristics of wind power.

A methodology to analyse the impact of offshore wind forecasting error on electricity markets

Currently wind power is dominated by onshore wind farms in the British Isles, but both the United Kingdom and the Republic of Ireland have high renewable energy targets, expected to come mostly from wind power. However, as the demand for wind power grows to ensure security of energy supply, as a potentially cheaper alternative to fossil fuels and to meet greenhouse gas emissions reduction targets offshore wind power will grow rapidly as the availability of suitable onshore sites decrease. However, wind is variable and stochastic by nature and thus difficult to schedule. In order to plan for these uncertainties market operators use wind forecasting tools, reserve plant and ancillary service agreements. Onshore wind power forecasting techniques have improved dramatically and continue to advance, but offshore wind power forecasting is more difficult due to limited datasets and knowledge. So as the amount of offshore wind power increases in the British Isles robust forecasting and planning techniques are even more critical. This paper presents a methodology to investigate the impacts of better offshore wind forecasting on the operation and management of the single wholesale electricity market in the Republic of Ireland and Northern Ireland using PLEXOS for Power Systems. © 2013 IEEE.