Managing Renewable Energy Resources Using Equity-Market Risk Tools - the Efficient Frontiers

TL;DR

This paper applies financial risk management tools, specifically efficient frontiers, to renewable energy resources to analyze costs and risks across US regions, aiding better resource allocation decisions.

Contribution

It introduces a novel application of equity-market risk tools to renewable energy, incorporating geographical and temporal factors for nuanced risk assessment.

Findings

Efficient frontiers effectively visualize cost-risk relationships.

Regional differences impact renewable energy resource risks.

The approach aids in informed decision-making for energy investments.

Abstract

The energy market, and specifically the renewable sector carries volatility and risks, similar to the financial market. Here, we leverage on a well-established, return-risk approach, commonly used by equity portfolio-managers and apply it to energy resources. We visualize the relationship between the resources' costs and their risks in terms of efficient frontiers. We apply this analysis to publically available data for various US regions: Central, Eastern and Western coasts. Since risk management is contingent on costs, this approach sheds useful light in assessing dynamic pricing in modern electrical grids. By integrating geographical and temporal dimensions into our research, we aim at providing more nuanced and context-specific recommendations for energy resource allocation. This approach may help decision-makers in the renewable energy sector to make informed choices that account for regional variations, climatic conditions, and long-term performance trends.