LAPSE:2023.21467
Published Article
LAPSE:2023.21467
Balancing Generation from Renewable Energy Sources: Profitability of an Energy Trader
March 22, 2023
Abstract
Motivated by a practical problem faced by an energy trading company in Poland, we investigate the profitability of balancing intermittent generation from renewable energy sources (RES). We consider a company that buys electricity generated by a pool of wind farms and pays their owners the day-ahead system price minus a commission, then sells the actually generated volume in the day-ahead and balancing markets. We evaluate the profitability (measured by the Sharpe ratio) and market risk faced by the energy trader as a function of the commission charged and the adopted trading strategy. We show that publicly available, country-wide RES generation forecasts can be significantly improved using a relatively simple regression model and that trading on this information yields significantly higher profits for the company. Moreover, we address the issue of contract design as a key performance driver. We argue that by offering tolerance range contracts, which transfer some of the risk to wind farm owners, both parties can bilaterally agree on a suitable framework that meets individual risk appetite and profitability expectations.
Motivated by a practical problem faced by an energy trading company in Poland, we investigate the profitability of balancing intermittent generation from renewable energy sources (RES). We consider a company that buys electricity generated by a pool of wind farms and pays their owners the day-ahead system price minus a commission, then sells the actually generated volume in the day-ahead and balancing markets. We evaluate the profitability (measured by the Sharpe ratio) and market risk faced by the energy trader as a function of the commission charged and the adopted trading strategy. We show that publicly available, country-wide RES generation forecasts can be significantly improved using a relatively simple regression model and that trading on this information yields significantly higher profits for the company. Moreover, we address the issue of contract design as a key performance driver. We argue that by offering tolerance range contracts, which transfer some of the risk to wind farm owners, both parties can bilaterally agree on a suitable framework that meets individual risk appetite and profitability expectations.
Record ID
Keywords
balancing market, contract design, day-ahead market, electricity price, profitability, RES generation, Sharpe ratio, trading strategy, Value-at-Risk, wind power forecast
Subject
Suggested Citation
Kath C, Nitka W, Serafin T, Weron T, Zaleski P, Weron R. Balancing Generation from Renewable Energy Sources: Profitability of an Energy Trader. (2023). LAPSE:2023.21467
Author Affiliations
Kath C: RWE Supply & Trading GmbH, 45141 Essen, Germany; House of Energy Markets and Finance, University of Duisburg-Essen, 45141 Essen, Germany [ORCID]
Nitka W: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland; Faculty of Pure and Applied Mathematics, Wrocław University of Science and Technology, 50-370 Wrocław, Poland [ORCID]
Serafin T: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland; Faculty of Pure and Applied Mathematics, Wrocław University of Science and Technology, 50-370 Wrocław, Poland [ORCID]
Weron T: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland; Faculty of Pure and Applied Mathematics, Wrocław University of Science and Technology, 50-370 Wrocław, Poland [ORCID]
Zaleski P: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland; Department of Finance and Strategic Analysis, EkoPartner Recykling Sp. z o.o., 59-300 Lubin, Poland [ORCID]
Weron R: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland [ORCID]
Nitka W: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland; Faculty of Pure and Applied Mathematics, Wrocław University of Science and Technology, 50-370 Wrocław, Poland [ORCID]
Serafin T: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland; Faculty of Pure and Applied Mathematics, Wrocław University of Science and Technology, 50-370 Wrocław, Poland [ORCID]
Weron T: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland; Faculty of Pure and Applied Mathematics, Wrocław University of Science and Technology, 50-370 Wrocław, Poland [ORCID]
Zaleski P: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland; Department of Finance and Strategic Analysis, EkoPartner Recykling Sp. z o.o., 59-300 Lubin, Poland [ORCID]
Weron R: Department of Operations Research and Business Intelligence, Wrocław University of Science and Technology, 50-370 Wrocław, Poland [ORCID]
Journal Name
Energies
Volume
13
Issue
1
Article Number
E205
Year
2020
Publication Date
2020-01-01
ISSN
1996-1073
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Original Submission
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PII: en13010205, Publication Type: Journal Article
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LAPSE:2023.21467
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https://doi.org/10.3390/en13010205
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[v1] (Original Submission)
Mar 22, 2023
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