# Selling Wind

## TL;DR

This paper presents a model analyzing how wind producers sell energy under uncertain conditions, showing that greater heterogeneity in wind resources enhances social welfare and affects firm profits and strategic behavior.

## Contribution

It introduces a parsimonious model linking wind resource heterogeneity to market outcomes, including welfare, profits, and collusion potential, under stochastic production constraints.

## Key findings

- Greater heterogeneity improves social welfare.
- Enhanced public forecasting increases welfare but may disadvantage strategic producers.
- Heterogeneity influences firm profits and collusion opportunities.

## Abstract

We offer a parsimonious model to investigate how strategic wind producers sell energy under stochastic production constraints, where the extent of heterogeneity of wind energy availability varies according to wind farm locations. The main insight of our analysis is that increasing heterogeneity in resource availability improves social welfare, as a function of its effects both on improving diversification and on reducing withholding by firms. We show that this insight is quite robust for any concave and downward-sloping inverse demand function. The model is also used to analyze the effect of heterogeneity on firm profits and opportunities for collusion. Finally, we analyze the impacts of improving public information and weather forecasting; enhanced public forecasting increases welfare, but it is not always in the best interests of strategic producers.