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A PDE and option based approach to valuing and designing stochastic storage for wind-generated electricity

Howell, S. and Duck, P.W. and Pinto, Helena and Strback, G. and Hazel, A. and Proudlove, N. and Black, M. (2006) A PDE and option based approach to valuing and designing stochastic storage for wind-generated electricity. In: Portuguese Finance Network 4th Finance Conference, 2006-07-06 - 2006-07-08. (Unpublished)

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Abstract

Significant penetration of wind generation will inevitably impose additional requirements on the remaining large conventional plant to deliver both the flexibility and reserve necessary to deal with variability and unpredictability of wind power, which will inevitably have cost implications. Energy storage systems appear to be an obvious solution for dealing with the unpredictability of renewable sources: during periods when intermittent generation exceeds the demand, when the surplus could be stored and then used to cover periods when the load is greater than the generation. However, views on the role of bulk storage remain highly controversial and, somewhat surprisingly, there has been very little work carried out to demonstrate the necessity (or otherwise) and economics of storage based applications in systems with high penetration of wind energy. In this paper we assess the economic value of such storage by an innovative realoptions method. Solution of the resulting PDE (partial differential equation) requires novel numerical techniques that are developed and successfully applied in this paper (and which yield results in excellent agreement, but at considerably less cost, than full simulations). This PDE approach may have applications in many physical, engineering and economic systems.

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  • A PDE and option based approach to valuing and designing stochastic storage for wind-generated electricity. (deposited 12 Apr 2011 14:15) [Currently Displayed]