Are Hybrid Wind and Solar Farms the Future?

Renewable electricity producers face several risks, including:

1.????Resource Variability: The availability and predictability of renewable energy resources such as wind, solar, and hydro can vary depending on factors like weather patterns, time of day, and season, which can affect the amount of energy that can be produced.

2.????Technological Risk: The renewable energy sector is evolving rapidly, and newer technologies may be untested or not yet commercially viable, which could pose a risk to renewable energy producers if they invest in these technologies.

3.????Policy and Regulatory Risks: Governments and regulatory bodies can change policies, incentives, or regulations, which can impact the profitability and viability of renewable energy projects.

4.????Market Risks: Fluctuations in energy prices, competition from traditional energy sources, and market saturation can also pose risks to renewable energy producers.

5.????Financing Risks: Access to financing can be a challenge for renewable energy projects, and financing risks such as interest rate fluctuations, currency exchange risks, and credit risks can also pose challenges.

6.????Natural Disasters: Renewable energy infrastructure, such as wind turbines and solar panels, can be vulnerable to damage from natural disasters such as hurricanes, floods, and wildfires.

7.????Cybersecurity Risks: As renewable energy infrastructure becomes more interconnected and reliant on digital systems, the risk of cyber attacks and data breaches increases.

In this article, we will present indices that help managing wind and solar power generation and price risks (point 1, 4 and 5 above). We will also check whether there is a relationship between solar and wind power price cannibalisation. This mini article is organised as follows:

First, we will define what is power price cannibalisation. Then the Speedwell / EPEXSpot Power Quanto Indices, which help to manage the risks, will be presented. And finally, with the full history of those indices, the correlation between Solar and Wind Price Quality Factors will be checked. The aim is to understand whether hybrid farms are the future for renewable energy companies.

Renewable power generation price cannibalisation

Renewable power generation price cannibalisation is a phenomenon that occurs when the increasing penetration of renewable energy sources (such as wind and solar) in the electricity grid causes the price of electricity to decrease even to a point where it may become unprofitable for renewable generators to operate. This can happen because renewable energy sources have low marginal costs, meaning that once they are installed, the cost of producing additional electricity is very low.

As more renewable energy sources are added to the grid, the overall supply of electricity increases, which can lead to a decrease in the wholesale price of electricity. This, in turn, can reduce the revenue that renewable generators receive for their electricity output, making it harder for them to cover their fixed costs and remain profitable.

Renewable power generation price cannibalisation can be a concern for policymakers and investors who want to promote the transition to renewable energy sources, as it can make it more difficult to attract investment in new renewable projects. To mitigate this risk, policymakers may implement measures such as carbon pricing, renewable energy certificates, or capacity markets to support the deployment of renewable energy sources and ensure their economic viability.

How to measure renewable power generation price cannibalisation?

For renewable power producers, asset holders and investors, the Speedwell / EPEXSpot Wind and Solar Power Quanto Indices reflect both wind/solar and spot price fluctuations over a period of time (day, month, season, etc.). Designed for risk transfer, these indices are integral to risk management programs that ensure revenues' stability, resulting in increased financing and development in the renewables market.

We publish three indices:

The Achieved Revenues Index (Volume x Price)

The Achieved Revenues Index is a measure of revenues generated for each hour (volume generated multiplied by the market price)

The Achieved Revenues Index is useful to hedge the full revenues of a wind farm. We have seen such index used for around 15 years in the market.

The Achieved Price Index (relative Volume x Price)

The Achieved Price Index is a measure of the actual price received on a weighted basis per MWh

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The Quality Factor Index (relative Volume x relative Price)

The Quality Factor (QF) is a measure of the actual price received on a weighted basis per MWh divided by the baseload price. The formula for the QF is:

The following previously few mini-articles on this topic may be useful if you would like to find out more about those indices:

·??????Wind Power Generation Indices that can be traded

·??????Measuring and Trading Wind Power Generation Cannibalisation

·??????Renewable Power Generation – Shape Risk

·??????Indices for Managing Renewable Power Risk

·??????The Solar Quack

·??????How can Renewable Energy Companies Lock in their Achieved Price

·??????Renewable Power Indices Offer Dynamic Hedging vs Static Hedging

·??????Buy a Power Purchase Agreement and get a Power Price Cannibalisation Index for Free

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We also invite the reader to become acquainted with the Speedwell Climate Volume generation indices.

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Are the Solar and Wind Power Quality Factors indices correlated?

Thanks to the Speedwell / EPEXSpot Power Generation Quality Factor indices, we know that price cannibalisation is happening in the market and have a tradeable measure of that cannibalisation. A key question is whether Solar and Wind are cannibalising each other’s. Solar is a highly concentrated risk. Solar Power Generation happens during day time, roughly between the hours of 9am and 5pm. Wind Power Generation happens at any time whether it is the day or night.

?In the next graphic the monthly Wind and Solar Power Quality Factor for Germany are plotted:

To study the correlation, we need to adjust the timeseries for trend:

Now let us represent the data using a scatterplot to reveal any possible correlation:

On the scatterplot above, we can see there is a slight negative relationship between monthly Solar and Wind Power Generation Quality Factor. In all cases, the correlation can be considered as ‘zero’.

By combining wind and solar farm on the same site, renewable energy companies will probably benefit from some substantial savings due to all the shared equipment and maintenance staff. And quite nicely, the operator will also benefit from a reduction in the monthly QF volatility. Cannibalisation (the trend in the QF) will still hurt them but the monthly volatility should be reduced. And this I believe explains why we are seeing more and more hybrid farms!

See:

The full article is available here:

Spain reports soaring number of hybrid wind-solar projects now under review – pv magazine International (pv-magazine.com)

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The Speedwell / EPEXSpot Power Quanto Indices which facilitate the transfer of renewable energy generation risk can be purchased from either the EPEXSpot online webshop or Speedwell’s one. Those indices can be traded OTC and embedded into project financing. Please feel free to contact us to find out more.

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Speedwell Climate is the leading provider of data for the climate risk transfer business. We also provide the Speedwell Environmental System for pricing and managing climate derivative contracts. Speedwell Climate also provides independent valuations of weather derivatives, quanto pricing, and portfolios of climate risks.

The header’s picture was generated using DALLE-2.

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