Date of Original Version

1-2013

Type

Working Paper

Rights Management

All Rights Reserved

Abstract or Description

Managing power generation from wind is conceptually straightforward: generate and sell as much electricity as possible when prices are positive, and do nothing otherwise. However, this strategy leads to curtailment when wind energy exceeds the transmission capacity or when prices are negative, and possible revenue dilution when current prices are low but are expected to increase in the future. Electricity storage provides a means to alleviate these problems, and also enables the purchase of electricity from the market for later resale. But the presence of storage and transmission capacity complicates the management of electricity generation from wind. Much is unknown about the management of such a generation plus storage and transmission system, for instance, how complex the optimal management of such a system is, how valuable storage is, and how relevant it is to include different factors—such as negative prices, the buying option, and future information. We answer these questions by developing and analyzing a Markov decision process model of this system.

Comments

Tepper Working Paper 2011-E36

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